Anti Wall Street Protests: What is making People Angry?
October 9th 2011 15:32
The protests against the Wall Street in October spread rapidly across many cities in United States, indicating that there is a strong underlying public dissatisfaction with the establishment. With economic crisis showing few signs of disappearing soon, maybe it is time we try and have some introspection about what all is happening around.
Every quarter of 2011 has seen public protests getting aroused in a new part of the world. The latest in this series are the Wall Street Protests in the first week of October, as five thousand people marched with a slogan that said, Occupy Wall Street. While public protests are a norm in liberal countries that respect right of free expression, these protests may be a far ominous sign, suggesting a widespread public disillusion with free market policies as the panacea of all ills. Though it is just a small event right now, it may eventually turn out to be a far more serious threat for the health of capitalist policies that have brought us all our prosperity during the last few centuries.
Capitalism has been the vehicle on which global economy and prosperity has grown ever since the beginning of industrialization. The only real threat to its existence, the Marxist Leninist Communism was bred and died and died a natural death during the twentieth century, leaving capitalism as not one of the economic ideologies, but the only one standing. The intelligentsia thinks, walks and moves today with a blind faith in the capability of capitalism to continue prospering us forever. Perhaps, this blind faith in the omnipotence of capitalism is the reason why we have been unable to sort our recent economic mess.
Markets fail frequently. Their failures have given rise to the term Business Cycle, but the economists of the world do not accept it as a form of failure. It is like religious faith, where criticizing the holy book will be blasphemy. The same has been the fate of rational expectations hypothesis. Everyone knows it doesnt work, and yet the researchers will never discard it because discrediting it will be associated with the loss of convenience that allows mathematical equating to be passed of as economic research.
While the business cycle downturn in a consumer goods market is limited, it creates a far greater havoc in asset markets, due to the lack of negative feedback cycles based on inventories and the existence of positive feedback cycles based on expectations. As a result, all cyclic movements get exaggerated, converting upswings into asset bubbles and downswings into asset busts. The recent crisis in 2007-08 resulted from a similar asset bust that was preceded by a housing asset bubble in United States. Yet, hardly anyone points it out or tries to analyze how and why our basic economic assumptions have failed.
Markets serve a great purpose of cutting down the transaction costs of buying and selling and by doing so, they facilitate consumption and production, in turn ensuring that the available resources are used in a optimum manner. However, markets frequently fail as well, for many reasons like lack of competition, negative externalities and in case of public goods. Recently, what we have been witnessing is a new source of market failure, the asset market. Unfortunately, the academia is not ready to accept it as such.
One of the most crucial failures of modern Economics lies in its inability to differentiate the inventory driven consumer goods markets from the asset markets, which are driven largely by expectations. Asset markets have grown in importance with rising global prosperity, and far outweigh the consumer goods markets today. In fact, in case of consumer goods too, futures, options and derivatives, which are all assets, thrive in such a way that transaction amounts in asset markets are much larger. It also means that their negative impact has amplified several times compared to the past.
While the profits made from the asset markets are reaped mostly by the rich who own and trade in such markets, when the asset markets fail, the cost of clearing that mess is undertaken by the governments, invariably with taxpayer's money, most of which comes from hard earned income. This is the root cause underlying public angst against government policies that tend to look at asset markets like stocks as sacrosanct and back their survival with resources which are to be collected later from the ordinary taxpayer and citizens. This asymmetry between the person who reaps the benefits and the one who bears the cost is at the heart of public anger across United States and Europe, which is now beginning to manifest in more and more ways.
There are many ways in which the economic mess leads to additional burden for the ordinary Tom, Dick and Harry. One of these is inflation, as seen widely today in Asia. Another is unemployment and recession, which is knocking at the door of several developed countries. Either way, it is the poor who actually suffer. High inflation has already taken its toll in Asia, and the reason this time it was less tolerable is due to its linkage with food. Food Inflation is inescapable and hurts the poor and the middle class far more than the rich. Its effects not only ricocheted in the revolutions of the Middle East this year, but were also visible in India and China in one form or another, eliciting rare protests and equally rare responses from the governments of the two emerging states.
In Europe and United States, it is manifesting primarily as unemployment, which hurts people and leads them to protests. Expansionary policies have so far only shifted the burden to future, but as future begins to unravel, people are realizing that the burden of the mess created by the rich in the asset market games will have to be borne by them. Such a realization can only make them angry. this is the reason that the prospects of a fresh crisis have made them react far more alarmingly this time than they did in 2007-08. People are fed up of instability, and they have begun to blame it on the capitalist Czars of the world.
People are not wrong, and the Czars are unlikely to escape forever. In the middle of all chaos, the million dollar question is, Will Capitalism survive these market failures?
It will, if only we understand what is wrong and set it right. We need to do it fast. Time is running out.
Anti Wall Street Protests in first week of October
Every quarter of 2011 has seen public protests getting aroused in a new part of the world. The latest in this series are the Wall Street Protests in the first week of October, as five thousand people marched with a slogan that said, Occupy Wall Street. While public protests are a norm in liberal countries that respect right of free expression, these protests may be a far ominous sign, suggesting a widespread public disillusion with free market policies as the panacea of all ills. Though it is just a small event right now, it may eventually turn out to be a far more serious threat for the health of capitalist policies that have brought us all our prosperity during the last few centuries.
Understanding Limitations of Capitalism and Free Markets
Capitalism has been the vehicle on which global economy and prosperity has grown ever since the beginning of industrialization. The only real threat to its existence, the Marxist Leninist Communism was bred and died and died a natural death during the twentieth century, leaving capitalism as not one of the economic ideologies, but the only one standing. The intelligentsia thinks, walks and moves today with a blind faith in the capability of capitalism to continue prospering us forever. Perhaps, this blind faith in the omnipotence of capitalism is the reason why we have been unable to sort our recent economic mess.
Markets fail frequently. Their failures have given rise to the term Business Cycle, but the economists of the world do not accept it as a form of failure. It is like religious faith, where criticizing the holy book will be blasphemy. The same has been the fate of rational expectations hypothesis. Everyone knows it doesnt work, and yet the researchers will never discard it because discrediting it will be associated with the loss of convenience that allows mathematical equating to be passed of as economic research.
While the business cycle downturn in a consumer goods market is limited, it creates a far greater havoc in asset markets, due to the lack of negative feedback cycles based on inventories and the existence of positive feedback cycles based on expectations. As a result, all cyclic movements get exaggerated, converting upswings into asset bubbles and downswings into asset busts. The recent crisis in 2007-08 resulted from a similar asset bust that was preceded by a housing asset bubble in United States. Yet, hardly anyone points it out or tries to analyze how and why our basic economic assumptions have failed.
Markets serve a great purpose of cutting down the transaction costs of buying and selling and by doing so, they facilitate consumption and production, in turn ensuring that the available resources are used in a optimum manner. However, markets frequently fail as well, for many reasons like lack of competition, negative externalities and in case of public goods. Recently, what we have been witnessing is a new source of market failure, the asset market. Unfortunately, the academia is not ready to accept it as such.
Failure of Asset Markets is Creating the Current Economic Mess
One of the most crucial failures of modern Economics lies in its inability to differentiate the inventory driven consumer goods markets from the asset markets, which are driven largely by expectations. Asset markets have grown in importance with rising global prosperity, and far outweigh the consumer goods markets today. In fact, in case of consumer goods too, futures, options and derivatives, which are all assets, thrive in such a way that transaction amounts in asset markets are much larger. It also means that their negative impact has amplified several times compared to the past.
Rich Reap the Benefits, Ordinary People Pay for the Losses
While the profits made from the asset markets are reaped mostly by the rich who own and trade in such markets, when the asset markets fail, the cost of clearing that mess is undertaken by the governments, invariably with taxpayer's money, most of which comes from hard earned income. This is the root cause underlying public angst against government policies that tend to look at asset markets like stocks as sacrosanct and back their survival with resources which are to be collected later from the ordinary taxpayer and citizens. This asymmetry between the person who reaps the benefits and the one who bears the cost is at the heart of public anger across United States and Europe, which is now beginning to manifest in more and more ways.
Public Protests are a Manifestation of Failed Policies
There are many ways in which the economic mess leads to additional burden for the ordinary Tom, Dick and Harry. One of these is inflation, as seen widely today in Asia. Another is unemployment and recession, which is knocking at the door of several developed countries. Either way, it is the poor who actually suffer. High inflation has already taken its toll in Asia, and the reason this time it was less tolerable is due to its linkage with food. Food Inflation is inescapable and hurts the poor and the middle class far more than the rich. Its effects not only ricocheted in the revolutions of the Middle East this year, but were also visible in India and China in one form or another, eliciting rare protests and equally rare responses from the governments of the two emerging states.
In Europe and United States, it is manifesting primarily as unemployment, which hurts people and leads them to protests. Expansionary policies have so far only shifted the burden to future, but as future begins to unravel, people are realizing that the burden of the mess created by the rich in the asset market games will have to be borne by them. Such a realization can only make them angry. this is the reason that the prospects of a fresh crisis have made them react far more alarmingly this time than they did in 2007-08. People are fed up of instability, and they have begun to blame it on the capitalist Czars of the world.
People are not wrong, and the Czars are unlikely to escape forever. In the middle of all chaos, the million dollar question is, Will Capitalism survive these market failures?
It will, if only we understand what is wrong and set it right. We need to do it fast. Time is running out.
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