Do you support Occupy Wall Street?

Steven Hahn: I am in sympathy. Obviously, Occupy Wall Street is a multifaceted phenomenon. I think people have properly noticed that there is not a coherent set of politics, or very clear set of demands—although there are some. But it seems to me that what OWS does do is that it provides a center for a new conversation that has been really lacking in this country for a long time—and not only since the beginning of the Great Recession, or Depression, or whatever it’s going to turn out to be—which is a critical perspective on the distribution of power and wealth in the United States, the role that financial and moneyed interests have played, the protections that the government and other institutions afford them, and the questions about what sort of society we want.

Rogers Smith: I think fundamentally it is a healthy thing for American politics—partly because of the widespread belief that old-fashioned 1960s kinds of protest activities had outlived their usefulness. There hasn’t been a lot of protest on the more left end of the American political spectrum. Probably the last were the anti-Apartheid demonstrations against South Africa. I think it is important for citizens across the spectrum to let leaders know that they have very real concerns. And even though there is no specific agenda being pushed by the Occupy movement, they are communicating, one, that they are deeply dissatisfied with this economy, and two, that they don’t think the answer is simply to give tax breaks and deregulate big business.

Greg Nini: It would be easier to answer if I knew exactly what they are … My guess is that [Occupy Wall Street] reflects the confluence of two things: one, that the rebound from the recession has been slow. If we’d had a rebound like we did after the 2001 recession, and unemployment was back down at 5 percent, and incomes were growing and house prices were rising, as was the case four years after the 2001 recession, I suspect this movement would not have happened. But it also matters that this lengthy recessionary period has happened at a period of high inequality. If this would have happened 40 years ago, when inequality was lower, it may have been less likely to have happened. It’s also true that finance has contributed some to the rise in inequality.

How has finance contributed to inequality?

Nini: There’s some research that shows that over the last 15 years, for example, the number of managing directors of investment banks, plus partners at venture capital and private equity firms, that the number of those people in the top 0.01 percent of the income distribution—the top one percent of the top one percent—is larger than the number of CEOs from non-financial corporations … And that would not have been the case even 15 or 20 years ago.

Does it matter that financiers are taking home more money than in the past?

Nini: Not on its face, I don’t think so. I think this reflects natural market forces. It turns out really smart people figured out they could make more money doing those activities than they could doing other stuff, and that reflects largely the returns they’ve generated. They do important work and they get paid for it. I wouldn’t want to put any value judgment on that. It’s a fact.

Does it matter that finance has, in recent decades, become a great deal more dominant within the American economy?

Jeremy Greenwood: It’s a skilled business. You have to think, look what happens when they don’t do it. Like if the government did it, would investing in Solyndra be a good idea?

Janice Bellace: My general view is that every country has a financial sector. And in every modern, advanced, democratic society financial centers are regulated to some extent. The financial crisis of 2008 raises issues about the looseness of credit, the regulation of mortgage lending—that is usually an individual’s largest debt—and actually the integrity or honesty of various persons in the system. But it interests me: Occupy Wall Street is angry at the banks. As I recall, the Tea Party movement was angry at the Federal Reserve. And you look at that and sort of laugh! What country can do without a central bank? And ours is actually somewhat weak. And what country can do without banks? It seems like angry people just flailing, not being able to articulate a specific complaint, let alone propose a sensible solution.

Nini: As a share of GDP, finance has almost tripled in the last 30 years. Largely, I view that as a good thing. Or, let me not put value on it—it reflects the fact that finance does important work. This reflects growth of junk bonds and leveraged buyouts in the ’70s and ’80s, private-equity investor capital in the ’80s and ’90s. The majority of evidence suggests that these things are valuable. They help get money to firms that would otherwise not get it. So, venture-capital-backed firms include Microsoft and Sun Microsystems … and who knows exactly what would have happened without venture capital? But they’ve been very successful at promoting small, entrepreneurial, technology-based firms.

Has their track record in doing that outweighed some of the deleterious effects of so-called financial innovation, which seems in some respects to have not had such a salutary influence?

Nini: It’s hard to measure well the costs and the benefits. My sense is that we’ve learned in this most recent experience that the costs are a little bigger than we’ve thought. That comes largely from thoughts about financial crises and contagion that can happen. I suspect that going forward, systems will be put in place which effectively act like a tax on the financial industry, and reduce the returns, and the financial industry will end up being a bit smaller.

Scott Nearing C1906 Gr1909, a Wharton professor of a
previous era, once wrote: “If I am rich and you are poor, we are both corrupted by inequality.” Do you agree?

Greenwood: Levels of inequality rise and fall. Whether it’s a good or bad thing, that’s a bit hard to answer from an economic perspective. So, for instance, a lot of the new goods you buy, often when they’re first developed they’re sold to rich people. And after time, after they produce enough of them, the price of those goods fall. So it might be the case that if there weren’t rich people around, some of those goods wouldn’t be developed. There are benefits of inequality. And then there are costs, too. For instance, we don’t like seeing a lot of poor people around. Social discontent is not a good thing—even for businesses. If there’s a lot of social discontent, and the environment is unstable, maybe they might not want to do a lot of investment. So that might be a case for having less inequality.

Bellace: Many people have commented that in the past 20 years, there has been a greater disparity between let’s say the top 5 percent of the population, or the top 1 percent, and the rest. That’s different than asking about the absolute living standard of the bottom third. But one thing to ask is whether the bottom has adequate medical and educational standards of living … Claudia Goldin and Lawrence Katz wrote a book a couple years ago called The Race between Education and Technology. [In it they note that] the investment America made in public education, particularly in the first half of the 20th century, tailed off in the latter part of the 20th century. So whereas the US was number one with the percentage of students going to college, for instance, now other countries are investing more and realize the value of higher education, but in the United States instead it has tailed off. And they find this truly dismaying, since we as a country were able to advance because of that investment in human capital. They pinpoint 1980 as the point where we stopped investing. And they ask: What are the implications for opportunities in society, for the ability to get certain jobs, and for the country to progress? At Penn, we’re concerned about the same issues. At the price we charge, are we closing the door to people? And President Gutmann of course has made a real effort to increase scholarship funds. But when you look at the US as a whole—and 80 percent of Americans go to state universities, not private—and you look at what state legislatures are doing to the budgets of state universities, you get very worried about opportunities for people in the future.

Nini: I tend to think that more equality is a noble goal. Sometimes that comes at the expense of the total amount of income or wealth, and so oftentimes conflicts arise. Settling those conflicts, that’s harder.

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The Participants:

Steven Hahn, Roy F. and Jeannette P. Nichols Professor of History
Walter Licht, Walter H. Annenberg Professor of History
Michael Katz, Walter H. Annenberg Professor of History
Rogers M. Smith, Christopher H. Browne Distinguished Professor of Political Science
Daniel Gillion, assistant professor of political science
Janice Bellace, Samuel A. Blank Professor of Legal Studies and Business Ethics; professor of management; chairperson of the Legal Studies and Business Ethics Department at Wharton
Gregory Nini, assistant professor of finance
Jeremy Greenwood, professor of economics
Michael X. Delli Carpini C’75 G’75, professor of communication; Walter H. Annenberg Dean of the Annenberg School

Anti-Wall Street marchers in New York's financial district.
Zuccotti Park in Lower Manhattan, where the Occupy movement began.




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  ©2011 The Pennsylvania Gazette
Last modified 12/23/11