Bailouts for Me, but Not for Thee
Occupy Wall Street demonstrators advocate policies that helped create the mess they're protesting.
About one week before the Occupy Wall Street protests really started taking off nationwide, longtime consumer crusader and third-party perennial Ralph Nader enthused to reporter (and reason contributor) Michael Tracey that Rep. Ron Paul (R-Texas) and the movement he spearheads represent a "foundational convergence" with the progressive left. "Libertarians like Ron Paul are on our side on civil liberties," Nader told Tracey. "They're on our side against the military-industrial complex. They're on our side against Wall Street. They're on our side for investor rights.…It's not just itty-bitty stuff."
A couple of days later, Ron Paul offered Tracey some qualified solidarity with the protesters in Lower Manhattan: "If they were demonstrating peacefully, and making a point, and arguing our case, and drawing attention to the Fed, I would say, 'Good!'?" It seemed like the sporadic dream of a progressive-libertarian alliance was cycling back into the realm of possibility. Then protesters released their first official "Declaration."
"Corporations do not seek consent to extract wealth from the people and the Earth," the preamble read, "and…no true democracy is attainable when the process is determined by economic power. We come to you at a time when corporations, which place profit over people, self-interest over justice, and oppression over equality, run our governments." Then came a Declaration of Independence–style list of grievances, one that replaced the he of the original (referring to King George) with a they, referring not to government officials but to the corporations for whom those officials allegedly work.
"They have poisoned the food supply through negligence, and undermined the farming system through monopolization," the declaration stated in a list of 23 bullet points that mostly could have been cut and pasted from the Nader 2000 campaign or the anti-globalization protests of the late 1990s. "They have held students hostage with tens of thousands of dollars of debt on education, which is itself a human right.…They determine economic policy, despite the catastrophic failures their policies have produced and continue to produce."
The student loan complaint is worth pausing to consider, because it has taken a surprisingly central role in the Occupy brand of protests (which as of October 7 had spread to St. Louis, Dallas, Houston, and dozens of other cities). In a Tumblr page called "We Are the 99 Percent," displaying handwritten testimonials from demonstrators who have cleverly cast themselves as Main Street victims of a rampaging Wall Street, many posters listed as their chief grievance the fact that they are obliged to pay back loans they took out for college.
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"We are blessed with 2 full time jobs but still pay on student loans 16 years after graduating," wrote one. "We live paycheck to paycheck and are one car repair away from missing our mortgage payment." Another said he wanted to become a science teacher, "but I'm shrouded in inflated student debts I didn't foresee." There was a 41-year-old MBA with $80,000 in student debt, a second-year college student who has racked up $20,000 in debt so far, the over-educated couple who probably won't be buying a house or having kids because of student loans, the public school teacher who lamented that "my kids owe a quarter of a million $ in student loans." As a fellow 99 percenter summed it up, "I did everything i was supposed to do: went to college, got good grades, participated in sports and clubs, graduated on time. 3 years later i have nothing to show for it."
To the extent that people were merely describing the grisly details of living through what has been the first- or second-lousiest economy since the Great Depression, most of us can empathize (even those of us who made the conscious decision to never incur student debt or buy a house). There is a growing body of economic literature suggesting that higher education is experiencing a price bubble at a time when the job market for graduates is more difficult than usual—though still exponentially better than that for nongraduates. But when unhappiness over the disappointing results of freely made choices spills into policy recommendations, the putative libertarian-progressive alliance breaks down—and the logic of the Occupy Wall Street movement eats its own tail.
The biggest point of commonality between Occupy Wall Street and the Tea Party is opposition to the federal government's 2008 bailout of the financial industry. "They have taken bailouts from taxpayers with impunity," the Declaration complains. "They socialized their own losses on our taxpayer dollars and on our currency and dumped that onto us," one Occupy Boston protester told video journalist Garrett Quinn. But at the same time, activists are demanding free college educations, holding up "Debt Is Slavery" signs, and asking the rest of us to socialize their losses in the higher education market. All to the applause of a left-of-center commentariat desperate for a Tea Party of its own.
New York Times columnist Paul Krugman suggested that "debt relief for working Americans become a central plank of the protests" because "such relief, in addition to serving economic justice, could do a lot to help the economy recover." Salon's Alex Pareene went further: "My immodest proposal is simply this: Individuals and households in the bottom 99 percent who owe debt to any large financial institution that received federal government support during and after the 2008 crisis should see their debt forgiven.…Let's wipe the debt of the 99 percent off the books, tell the financial sector to eat it, and get on with our lives." Wiping out banks' consumer loan portfolios—including those of banks that did not want but were forced to accept bailout money—would have one guaranteed result: Banks would stop lending money to consumers, which no doubt would trigger a new cycle of activist agitation for more lending to lower-income citizens.
Unintended, consumer-unfriendly consequences are the norm whenever anti–Wall Street sentiment is translated into public policy. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, for example, required banks to reduce the debit card swipe fees they charge retailers from an average of 44 cents to 24 cents per swipe. The totally predictable result: Bank of America in September announced that it would begin charging its customers $5 a month for the privilege of using a debit card. This came one year after another crackdown on consumer banks encouraged Bank of America and others to eliminate most of their free checking accounts.
This issue of reason is a testament to the unintended consequences that result from economic magical thinking. As John McClaughry explains in "The Affordable Housing Scam" (page 60), the housing bubble that precipitated the financial collapse and economic downturn was inflated both by the moral hazard of government guarantees and by the concerted government/activist push to expand home ownership into lower-income segments of the population. "It was a mistake to subsidize new home buyers," Nobel laureate and experimental economist Vernon Smith explains in a Q&A that begins on page 44. And in "Is Social Security a Ponzi Scheme?" (page 10), columnist Jacob Sullum explains that the "trust fund" supposedly covering the program's obligations never actually existed.
As of this writing, the Occupy Wall Street movement appears to have legs. I am generally happy to see public displays of disaffection with a governing elite that has inflicted so much bad economic policy on the rest of us, even more so when the protesters lean toward the political party that currently occupies the White House. (Many Tea Partiers I've talked to express personal regret that they didn't get their start opposing George W. Bush.) But I will reserve my enthusiasm until the moment that protesters stop bashing capitalism and start confronting the incoherence of opposing bailouts for everybody but themselves.
Matt Welch is editor in chief of reason and co-author of The Declaration of Independents: How Libertarian Politics Can Fix What's Wrong with America (PublicAffairs).