by James Johnston
The world has recently seen protests on Wall Street, rioting in London, and tension in other parts of Europe as it deals with insolvent debtor nations. Mass confusion is in the air.
In New York, as the protesters try to explain why they feel exploited, critics and observers can’t seem to figure out what they’re crying about. Protesters have been labeled a bunch of entitled, rambling, half-naked young hipster eccentrics. In London, the world witnessed a similar process of bewilderment, where observers couldn’t initially put their fingers on why impoverished “working class” rioters were out causing a fearful stir (after all, most of the critics were motivated and had decent jobs, thank you very much). Meanwhile, stocks around the world continue to rally and tumble with unprecedented volatility. Growth forecasts and economic orthodoxy are proven wrong again and again. Job and wealth creation strategies don’t help the people who need it most.
If the protesters are rambling eccentrics, then traders, mainstream economists and policymakers must be lunatics because they continue to make the same mistakes and expect better results each time!
Frankly, neither side of the debate has a particularly firm handle on the reality of the problem, and hoping that the movement will simply fade away will prove to be wishful thinking. Among all the mass confusion, steady-state theory might help us account for not only the the economic problems, but also the ideological divide. Using the Wall Street occupation as our example, let’s assess the two sides of the debate and hypothesize how the two groups have come to inhabit such different planets.
First, the two sides of the debate are divided primarily along generational lines, not just ideological ones. The protesters might be characterized as a group of well-educated, disenchanted and heavily indebted young people who were raised to be grossly unprepared for the situation they find themselves in. They were told that when they completed their degrees, a growing economy would enable them to pay back their hyper-inflated loans and put a down payment on a massively overpriced home (relative to historical norms). Not only are these young people seriously indebted and underemployed, but they know the planet’s ecological line of credit is also maxed out, causing them to question what they should be working so hard for in the first place. They’re expressing legitimate frustration with a set of real, serious problems that go unaddressed in the U.S.
What about the other side? While some lucky or ambitious younger folks may also fall into this category, it can more generally be characterized as an older, more comfortable cohort on auto-pilot that has grown accustomed to the illusion of perpetual growth. They’ve witnessed it their whole lives: growth in asset values (including home values), growth in the economy’s energy use (more stuff, more suburbs, more oil), growth in levels of indebtedness (to afford it all), and growth in the supply of money. They are perpetuating a system that is structurally engineered to collapse without feeding its addiction to growth (mainly by exploiting future generations).
Unfortunately, those advocating the status quo are firmly entrenched in their beliefs, and they have in their midst traders, economists and policymakers who can articulate those beliefs well. Meanwhile the protesters have yet to present a unified and coherent set of theoretical principles to rebut conventional arguments and explain their worldview. They come off as disoriented, lost, and a little incoherent. But stupid they are not.
While the nuanced reasons for protest vary around the world, young people have a visceral grasp of something that the most comfortable in our global society are simply too sheltered to acknowledge — big problems in an economy that has been engineered for ecological and financial ruin.
It’s only a matter of time before confusion gives way to clarity, when we’ll have to come to terms with our post growth reality. It will begin with a set of pragmatic banking reforms: a gradual increase in the fractional reserve requirement, the reconnection of investment banking to the real economy, and the regulation of derivatives.
That’s just the beginning.
After Wall Street — or whatever comes next — we will all have to make an effort to inhabit the same finite planet and bridge the divide. We will have to find common purpose in the realignment of our overarching social and economic goals — not toward yesterday’s notions of solidarity or neoliberalism — but toward meaningful capital maintenance for prosperity without irresponsible growth.