“What (or whom) should we occupy?” has become shorthand for a bit of communal soul searching. We know that our economy fails to measure up. For some the pain is very personal, “Why can’t I find a job?” or “Must I work so hard for so little?” or “Why can’t employers see what I see in my daughter or my son?” Or one step removed, “What do we do about single moms stuck in a continuing cycle of poverty?”
We want answers. We blame globalization or automation or the school system. Or we blame government or regulation or some shadowy conspiracy. And we blame each other. The Occupy Wall Street movement blames the greed of the rich and powerful and their agents in government. The Tea Party movement blames the power of Big Labor—and their agents in government.
What we want changed depends on who we think is guilty. The Tea Party wants less government. The Occupy movement wants more.
The more radical Occupiers question the fundamentals of our economic system. I was asked to speak to a group at Rochester’s Third Presbyterian Church on this topic—“How does a Christian think about capitalism?” Putting the question in a faith context changes how we value the results of our economic system. A parable of Jesus speaks of a sorting of the worthy and the unworthy—and that worthiness is defined by actions taken for the “least of my brothers,” e.g. the hungry, the stranger, the unclothed, and the prisoner.
Popularized by Karl Marx, the slogan, “From each according to his ability, to each according to his needs” seems more consistent with Jesus’ parable than what our system achieves. However, the problem with utopian socialism isn’t its objectives, but its results. Socialism works for saints—the gifted give without thought of repayment; the needy accept without exploiting the giver. For sinners, we need capitalism.
Adam Smith, the patron saint of market capitalism, noted that markets aren’t driven by love: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” Self-interest—greed, if you like—is the engine of capitalism. Critics claim that economists, like Michael Douglas’ Wall Street character Gordon Gekko, think “greed is good.” I disagree: to be reflexively self-interested is the human condition, “original sin” in theological terms. Economists think about greed the way engineers think about gravity—it isn’t good or bad, it just is.
To be productive, the economic system must permit reward, thus harnessing self-interest to the task of meeting society’s material needs. To be fair, the economic system must also limit the power that can be amassed from market success, thus restraining the capacity for exploitation. Adam Smith’s proposition was that greed can be both harnessed and limited by promoting a distribution of market power.
“Unbridled” capitalism often leads to concentration of power and from there to exploitation. It was that same Adam Smith who said, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Thus, the bridle is a critical piece of equipment. There are two approaches to manage, or bridle, concentrations of market power in capitalist systems. One solution is more regulation, effectively creating countervailing power in an agency charged to act on behalf of the public. The other solution is to create a more competitive private market.
The performance of the regulators in the financial crisis was dismal. Pick a reason:
a) The regulations were too weak.
b) The regulators had been captured by the regulated.
c) The regulators were simply outgunned, as outsized Wall Street salaries attracted the best and brightest.
I’ll take “all of the above.” Which is why I’m unimpressed with the response of the nation’s leadership, having left the structure of the financial sector untouched, and choosing instead to put our faith in more regulation and better regulators.
One unintended consequence of efforts to shore up the banking system in 2008 was an increase in the concentration of our banking sector. The top three banks—JP Morgan Chase, Bank of America and Citibank—are still the top three and their combined assets in 2011 rose 23% from 2007. The assets of the largest five banks grew 28%. #5 Wells Fargo absorbed #4 Wachovia. Bank of America acquired Merrill Lynch. JP Morgan Chase purchased Bear Stearns. And so on.
|Largest U.S. Banks by Consolidated Assets|
|June 30, 2007||June 30, 2011|
|Institution||Assets ($bn)||Cumul. Total||Institution||Assets ($bn)||Cumul. Total||Change: 07 to 11|
|Bank of America||$ 1,252||$1,252||JPMorgan Chase||$ 1,791||$1,791||+43%|
|JPMorgan Chase||$ 1,252||$2,504||Bank of America||$ 1,454||$3,245||+30%|
|Citibank||$ 1,133||$3,637||Citibank||$ 1,216||$4,461||+23%|
|Wachovia||$ 524||$4,161||Wells Fargo||$ 1,104||$5,565||+34%|
|Wells Fargo||$ 429||$4,590||US Bank||$ 310||$5,875||+28%|
|US Bank||$ 185||$4,775||PNC||$ 255||$6,130||+28%|
|Suntrust||$ 177||$4,952||BoNY Mellon||$ 236||$6,366||+29%|
|HSBC||$ 169||$5,121||HSBC||$ 195||$6,561||+28%|
|FIA Card Svc (part of BoA)||$ 143||$5,264||FIA Card Svc (part of BoA)||$ 187||$6,748||+28%|
|National City||$ 138||$5,402||State St Bank||$ 185||$6,933||+28%|
|Source: Federal Reserve System|
For capitalism to work, we must balance self-interest against self-interest by splitting up these enormous companies, companies that are, indeed, “too big to fail.” Markets work best when you pit wolves against wolves. So far, our strategy has been to hire more sheep dogs.