by Hugh F. Kelly
My two sons were among those arrested on Oct. 1 for marching with the Occupy Wall Street protest. Naturally a number of my friends in the business, real estate, and investment communities have asked how I reacted. I tell them what I told my sons: that I regard these as honorable arrests. Get nabbed for mugging, for fraud, for shoplifting, or for violence, and I’m not so sympathetic. But get arrested for acting on your beliefs? I’m O.K. with that.
I understand others might feel differently. My own perspective is formed both by my working role as a commercial real estate consultant and my research as an urban economist. And, as a lifelong Catholic steeped in church teaching, I think the Occupy Wall Street activists are on the right track in terms of moral and spiritual values. Let me tell you why.
At a real estate conference I recently attended in Washington, D.C., someone remarked, “the protesters are naïve; they need to learn some basic economics.” Actually, as far as basic economics are concerned, the numbers validate the objections of the Occupiers. The inequality of income distribution reached a critical level before the 2007-2008 economic panic and the associated collapse of the financial markets. The Great Recession has only made a bad situation worse.
Over the past three decades, the mean after-tax income for the top 1% of U.S. earners increased by 275%, compared to a 40% gain for the middle class, and just 18% for the bottom one-fifth of American households. The contrast between the 1% and the 99% is well-justified from an economic standpoint. The United States has the highest degree of income inequality of any developed nation in the world.
President of the San Francisco Federal Reserve Bank, economist Janet Yellen (a Brooklyn native, incidentally) said in 2006, “Inequality has risen to the point that it seems to me worthwhile for the U.S. to seriously consider taking the risk of making our economy more rewarding for more of the people.”
Conservative economist and former George W. Bush administration member, Gregory Mankiw of Harvard, suggested recently that, while disagreeing on specifics with the protesters, he respected their activism. “These are good questions to be asking,” said Mankiw, “and to the extent that Occupy Wall Street sparks debate, that’s good.”
There is considerable skepticism about the economic justification for Wall Street’s bonus structure, which is a primary cause of the wide income inequality in New York City, particularly. That skepticism does not arise from the resentment of the “99%ers,” but from the pinnacle of the economics profession. In an Oct. 23, 2011 New York Times Magazine article Daniel Kahneman, winner of the 2002 Nobel Prize for Economics, wrote that, over time, the ability of mutual fund managers to provide investors with results due to superior skill in analysis and performance was, statistically, no different than flipping a coin. Yet investment managers are paid substantial bonuses for such random results. The Wall Street Journal famously illustrates this from time to time, showing that top managers do no better at picking winners than a reporter throwing darts at a stock chart. Still, on Wall Street, there is deep-seated confidence that bonuses truly reward ability.
At the same time, those that we depend upon most in our society – police and firefighters, teachers, hospital workers, social service providers, and those who toil as janitors, cooks, truck drivers, and the like – are faced with layoffs and declining real (inflation-adjusted) incomes. The U.S. economy employs fewer workers in 2011 than it did five years ago, and just about the same as 10 years ago. Think about that: a decade has passed without the net addition of a single job in the United States. Yet, after-tax corporate profits that were $660 billion in 2003 rose $1.4 trillion in 2010. No wonder the Occupiers assert that income distribution is not only unequal, but it is unfair.
On the question of fairness, Catholic social teaching has been consistent and clear for more than a century. Beginning with Pope Leo XIII’s path-breaking encyclical “Rerum Novarum” (1891), the Church has emphasized that the economy exists to serve human beings, not the other way around. There is a fundamental right to fair and decent wages, and for workers to organize as a means to that end. It is a scandal for some to have excessive wealth, while their neighbors lack the necessities of life.
Pope Paul VI taught in his encyclical “Populorum Progressio” (1967) that, “One must avoid the risk of increasing still more the wealth of the rich and the dominion of the strong, whilst leaving the poor in their misery and adding to the servitude of the oppressed.” Instinctively, the “99 percenters” resonate with that message.
One of the issues I have with the Occupy movement – and this is really at the heart of its identity – is that the whole supposition of an adversarial relation between the 1% and the 99% appears to foreclose in advance any thought of cooperation and collaboration.
The U.S. Catholic Bishops idealistically stress the need for greater unity. As the bishops teach in “Forming Consciences for Faithful Citizenship” (2007), “Workers, owners, employers, and unions should work together to create decent jobs, build a more just economy, and advance the common good.” Unfortunately, from my perspective, commitment to compromise in the service of the common good has been largely erased from political discourse and this is carrying over into the economic sphere as well.
Sometimes, though, a certain tension is necessary and can be fruitful. The insistence of the Occupy movement that the problems are not just “defined issues” but a structural weakness in the economic system might be a correct diagnosis, not just excessive vagueness. After all, we have seen over the past 25 years a series of crises.
These have included the collapse of the Savings and Loan industry; the Mexican peso crisis of 1995 that led to the bankruptcy of Orange County, Calif.; Russia’s default on its sovereign debt and the Thai Baht crisis of 1997-1998 that triggered the failure of Long-Term Capital Management, the biggest hedge fund on Wall Street; the bursting the dot-com bubble; and, the subprime mortgage debacle that began unfolding in 2006 and continues to today.
My point is this: if an economic system goes into crisis once every three to five years, that system is not healthy. Like the lad who pointed out that the emperor had no clothes (new or otherwise), the observation of the 99%ers might be unsophisticated, but it is nonetheless correct.
Last Sunday, we celebrated the feast of Christ the King. It is timely to reflect on this. This year, we are blessed to have the great Gospel passage from the 25th chapter of Matthew to guide our thinking. That is Jesus’ memorable word-picture that sees the Just Judge separating the righteous from the wicked with the words, “As long as you fed, clothed, cared for, visited the least of my brethren, you did that to me.” That same Jesus warned, “It is more difficult for a camel to pass through a needle’s eye than for a rich person to enter the Kingdom of Heaven.” That’s not a bad precedent for the basic message of the Occupy Wall Street participants.[hr] Hugh F. Kelly, Ph.D., is a Brooklynite who serves as a clinical associate professor, NYU/Schack Real Estate Institute. He also advises the Diocese of Brooklyn on real estate matters.