Occupy Wall Street Movement and US oligarchy

Zafar Bangash

Dhu al-Hijjah 05, 1432 2011-11-01

Main Stories

by Zafar Bangash (Main Stories, Crescent International Vol. 40, No. 9, Dhu al-Hijjah, 1432)

It is an open question whether the Occupy Wall Street Movement will achieve its objectives. Launched on September 17, it has not only lasted much longer than most observers had anticipated, it has also gone global. On October 15, there were rallies in 82 countries worldwide from east to west and north to south.

It is an open question whether the Occupy Wall Street Movement will achieve its objectives. Launched on September 17, it has not only lasted much longer than most observers had anticipated, it has also gone global. On October 15, there were rallies in 82 countries worldwide from east to west and north to south. During this time there have been attempts to both rubbish as well as co-opt the protest movement, especially in the US.

America’s super-rich — the top 1 % in the celebrated words of Nobel laureate Joseph Stiglitz — and their hired guns in the US Congress as well as the media have gone hysterical. Eric Cantor, the Republican House majority leader, has denounced the Zuccotti Park protesters as “mobs” and “the pitting of Americans against Americans.” Mitt Romney, the Republican presidential contender, has accused them of waging “class warfare,” while Herman Cain, the African-American businessman, also a Republican contender, has said they should blame themselves if they are unemployed. He called their activities “un-American.”

The rightwing hysteria has exposed how untenable its position is. By calling the movement Occupy Wall Street, instead of Occupy the White House, the protesters have put their finger on the source of the problem. Even the occupant of the White House is a slave of the super-rich. Despite much media hype about Barack Obama’s tapping ordinary Americans for campaign contributions during the 2008 presidential campaign, his biggest donations came from Wall Street. This year too, he has raked in more than his nearest Republican rival, Mitt Romney, who has started to attract large donations from Wall Street because of the stand he has taken against the protesters. Thus no matter who occupies the White House, it is the Wall Street barons that run the show. As Paul Krugman wrote in his New York Times column (October 10): “The way to understand all of this is to realize that it’s part of a broader syndrome, in which wealthy Americans who benefit hugely from a system rigged in their favor react with hysteria to anyone who points out just how rigged the system is.”

The rightwing media has also accused the protesters of not presenting a clear set of demands. They have repeatedly called for taxing the rich and, demanded that people, not banks, be bailed out. One would have to be deaf to claim they have not put forward coherent demands. Even if one were to assume that they did not have specific clear demands, would it matter? People have been demanding an end to the extremely costly wars in Iraq and Afghanistan that have contributed in part to the current economic meltdown. Are the elites listening? Obama announced on October 21 the withdrawal of US “combat” troops from Iraq by the end of the year but it was not in response to people’s demand; the Iraqis told them to leave. The US is now threatening wars in other countries, something the people do not want yet the elites refuse to listen to the very people they claim to represent.

So we need to ask, what really ails America? In his excellent new book, Oligarchy, Jeffrey Winters of Northwestern University has pointed out how chronically dysfunctional US democracy appears to be when it comes to policies that impinge on the rich. “Despite polls consistently showing that large majorities favor increasing taxes on the wealthiest Americans, policy has been moving for decades in the opposite direction. Reduced taxes on the ultra-rich and the corporations and banks they dominate have shifted fiscal burdens downward even as they have strained the government’s capacity to maintain infrastructure, provide relief to children and the poor, and assist the elderly,” according to Professor Winters.

How the super-rich have succeeded in protecting their wealth and paying less tax than middleclass Americans needs to be understood and analyzed. Between 1920 and 1955, the average income of working-class Americans doubled in real terms and tripled by 1970. But in the four decades since, there has been no improvement for the lower 90% of American households. And it was not the result of economic stagnation; the economy continued to grow but income for average citizens did not.

The story for the super-rich is completely the reverse. Until 1970, their incomes were relatively flat. In 1970, and especially in the decades since, their income has skyrocketed. They have used their wealth to keep the taxman at bay, and have hired lawyers, lobbyists and consultants as well as bribed congressmen to ensure no laws are passed detrimental to their interests. It has rightly been said that America has the best democracy money can buy. A July 17, 2008 Senate staff report titled Tax Haven Banks and US Tax Compliance, by the Permanent Subcommittee on Investigations, estimated that lawyers, accountants and lobbyists help America’s super-rich (oligarchs) avoid paying about $70 billion in taxes each year through what the IRS calls “abusive offshore tax avoidance schemes”. This is a sum equal to the boon the Bush tax cuts gave to the entire top 2% of income earners (a group 20 times as numerous as America’s oligarchs), and it does not include losses from similar schemes employed by corporations.

The story of tax avoidance and evasion by the super-rich is more than a century old. In 1894, when a new federal income tax law was passed that targeted the richest 0.1 percent of the population, the super-rich hired lawyers and took the fight to the Supreme Court. In a 5–4 decision, the law was struck down. In 1913, Congress passed the 16th Amendment to the Constitution targeting the top 1% to pay their fair share of tax. Again, the super-rich, using their wealth, marshalled the combine might of lawyers, accountants and lobbyists to subvert the law. Since then, they have bought a large number of congressmen/women to do their bidding. Members of Congress are also willing participants in defrauding the American people because some 60% of them are also millionaires. Besides, they are dependent on contributions from wealthy donors to run their campaigns. Last year, the US Supreme Court ruled that even corporations were entitled to make campaign contributions otherwise it would deprive them of the “right” to lobby government!

In the four decades since 1970, several developments have helped the exponential growth in the wealth of the super-rich. They successfully lobbied and won the right to self-regulate big corporations. This led to such Ponzi schemes as the dotcom scam, the housing bubble and the hedge funds and derivatives scams. Even leading financial experts did not understand what these schemes (scams?) meant or how they worked. Some economists even warned of disastrous consequences that would follow if some kind of an oversight mechanism were not put in place. Such concerns were dismissed with the flourish that the market would take care of it. None of these schemes had anything to do with the market; they were being operated outside of all market rules. Non-performing mortgages were bundled with loans and sold to other banks as sound investment portfolios. The banksters and hedge fund managers involved in these scams then sold these stocks short, making millions of dollars in the process. They knew these investments would fail. Even after such fraud, not one top executive or manager has been charged, much less sent to jail.

After the dotcom scam, the housing bubble burst in 2007–2008 resulting in economic collapse. The US was gripped by its biggest financial crisis since the Great Depression of 1929–1930. Immediately, then US President George Bush sent his Treasury Secretary Henry Paulson and Defence Secretary Robert Gates to a select group of congressmen with a dire warning: either accept a package of $750 billion to bail out the banks and corporations ensnared in the non-performing mortgages scam or prepare for the declaration of martial law. The congressmen caved in. Top executives of major corporations (including Paulson who was CEO of Goldman Sachs before becoming Treasury Secretary) that had pilfered millions of dollars in bonuses for the “wonderful” job they were doing as financial managers, were rewarded with billions of dollars in bailouts of taxpayers’ money. Paulson himself got $500 million out of the bailout deal.

The average American was left holding the bag for the greed and mismanagement of top executives. Millions of Americans lost their homes and have been forced to live in tents ever since. Not one chief executive has been charged with any crime or sent to prison. Commenting on this state of affairs, Adam Garfinkle in his article, Plutocracy and Democracy, wrote that American democracy not only places few constraints on the power of the super-rich but that by design, it is more responsive to the power of money (The American Interest, January/February 2011).

At the time the financial crisis erupted in 2008, it was argued that these corporations were too big to fail and that millions of American jobs depended on them so they could not be allowed to fail. While banksters and CEOs of major corporations got millions in bonuses for playing roulette with the US economy, ordinary Americans lost their jobs and their homes as a consequence. Today, there are 46.2 million Americans (15.1% of the population) living below the poverty line. Similarly, the official unemployment rate of 9.2% does not accurately reflect the true picture. In the 18 to 30 year age bracket, the unemployment rate is around 17% while for African-Americans in the same age bracket it is close to 30%.

There is one other factor worth considering. In the past, America waged wars against other countries to plunder their resources. While billions of dollars were spent on wars, the gains from other countries compensated for such losses. The average American was thus cushioned from financial loss. For the first time in its history, America has not been able to benefit from the wars in Afghanistan and Iraq. In fact, between the two wars, the cost to US economy has been of the order of $4 trillion. Should the wars continue, this price would also continue to rise. Coupled with the loss of America’s manufacturing base and increasing dependence on Chinese funds, the US has an external debt of more than $14.2 trillion. If internal debt were taken into account, it climbs to $52 trillion. Interest alone on such debt is astronomical.

A combination of factors — unending wars, a foreign policy managed by Israel, the massive culture of corruption, refusal of the super-rich to pay their fair share of taxes and the loss of America’s manufacturing capacity — have brought the once mighty US economy to its knees. Ordinary Americans including its youth have finally realized who their enemy really is: the Wall Street banksters and executives, hence their movement Occupy Wall Street.

As mentioned at the beginning of this article, whether they will succeed in their quest or not in changing the system is an open question. What is not in doubt is that even the American people have finally realized that their own rulers, not some unknown foreign groups, whether Muslim or others, are the real enemy. This can be considered an achievement of sorts.