Hey punk, where you goin’ with that Button on your shirt? Hey punk, where you goin’ with that Button on your shirt? I’m goin’ to the love-in to sit & play my bongos in the dirt. Yes, I’m goin’ to the love-in to sit & play my bongos in the dirt. Frank Zappa wrote those lyrics in 1968, and they could very well describe the Occupy Wall Street protests today.
Now, I admittedly took a lot of heat for the Monthly Manifesto, article that I wrote about the Occupy Wall Street protests. In it, I basically called their 99% rallying cry a farce. While I stick to that statement, I do have to say that not only do I support these protesters right, as established by the Constitution, to assemble, I also believe that civic action and peaceful protest can make a difference. I grew up during the Viet Nam war and think that we would probably still have troops in Da Nang and Khe Sahn if it were not for the voices of millions of people protesting the government’s policies.
I also have to say that I do agree with one of the points being made by the Occupy Wall Street bongo bangers. Over the past couple of decades the finance, insurance and real estate industries have been growing rapidly, and for all of the wrong reasons. In fact, as a percentage of GDP, this sector of the economy has grown from about 14.7 percent in 1970 to over 21 percent in 2010 (it in fact peaked at 21.5 percent in 2009). The reasons behind this have less to do with the market than they do with government regulatory and tax policies that have encouraged the growth in these sectors. Both Democratic and Republican administrations (Keogh was a Democrat, Roth a Republican) have encouraged this through:
- Complicated tax policies with high marginal rates that encourage the development of tax shelters;
- Differential taxes on wages and income from capital;
- Subsidies for mortgages and other forms of debt;
- Complex tax driven pension schemes like 401(k) and IRA plans; and
- A complex and diffuse regulatory structure for both the capital and real estate markets.
These factors have forced more corporations and everyday American citizens to rely more and more on brokers, financial advisors, private pension fund managers, lawyers, accountants, hedge fund managers and bankers. More demand leads to higher prices and wages in these occupations have risen much faster than have those in other industries. No wonder that kids today want to go into finance and not science, art or manufacturing.
The fact is, as the nation’s wealth flows into Finance, Insurance and Real Estate, it flows out of more productive sectors of the economy. During this same period, the percentage of GDP resulting from manufacturing has fallen from 22.7 to 11.7, from transportation from 3.9 to 2.8 and from retailing from 8.0 to 5.9. Note that even government has fallen as a percent of total Gross Domestic Product over the same period (from 15.2 to 13.4 percent of GDP).
You don’t have to be Joseph Schumpeter to recognize that the most recent recession came out of the financial and real estate sectors of the economy, or to see that much of the nation’s wealth is being wasted in fairly non-productive ways on promoting the development of financial and real estate assets. Unfortunately, as the demonstrators have pointed out, the last two administrations (under both Republican and Democratic control) have done little to allow creative destruction take its course. This would have led to shifts of labor and capital away from finance and real estate and toward more productive uses.
Bailouts, TARP, rescues and a continued tendency toward more regulation and a more complicated tax code only encourage this, unduly lengthening the recession, propping up wages on Wall Street, and ensuring that those working in other industries are starved of the resources that they need to compete in world markets.
Banging bongos in the dirt may not change this, but it may provide more ammunition for those who lobby to simplify and rationalize tax and regulatory policies.