Contemporary finance and OWS

I have mixed feelings about Occupy Wall Street. I absolutely agree that the U.S. has a systemic economic problem that benefits financial speculators — the 1 percent — and hurts average money savers — the 99 percent — but the protesters' demands are rooted in the same logic that got us into this mess.

Contemporary Finance (Wall Street) and OWS are both born out of an idealistic worldview that emphasizes the reality of the imagination. Financial derivatives and mortgage-backed securities, TARP, freeeducation and health care for all, a money-free society and a free-money society (the welfare state) are all built upon the same imaginary foundation and faulty logic.

The particular idealistic logic that I am attacking holds two problematic assertions: that there is a real separation between information and material and that information has an ontological privilege over material. What results is a conceptually useful but unreal distinction: Information "flows" in and around and through matter and is superior to material.

This brand of idealism is common in our understanding of DNA, neuroscience, the Internet and countless other hot topics of the information age. But most tragically, this view underlies our monetary and fiscal policy and our society's general attitude toward money.

I will take one example from the world of finance and one example from the demands of OWS and argue that they depend on the same idealistic understanding of money. Both are simple examples and should be well-known.

In the world of finance there is a practice used by the Federal Reserve called quantitative easing. Our monetary policy holds that constant slow-growth of the money supply (inflation) is considered a good thing and deflation is always a bad thing. But, the Fed reasons, when inflation is too low and unemployment is too high, the money supply needs the hyper-inflationary boost of quantitative easing. The idea is to get banks to lend more money so that people will spend more and the economy will grow and jobs will be created. This is tantamount to prescribing a solution that is equivalent to the problem.

The problems with this logic are too great to take on in detail but common sense dictates that if you spend money that isn't yours, you have to pay it back. The sophistications of our current monetary policy suggest we pay bills that we can't afford by printing more money.  In other words, the Fed lends new money to itself, literally conjuring money out of thin air in a practice so brazen that we often don't even print banknotes, instead, cash wondrously appears on a balance sheet. Beside the fact that the economic history of the past 10 years has proven these policies wrong time and again, suffice it to say that if something sounds too good to be true, it is. Our money is backed by nothing but belief.

The demands of the Occupy protesters rely on the same idealistic understanding of money as the financial markets themselves.

Much of the methodology protesters suggest to right the wrongs of Wall Street is the forgiveness of debt. Many brandish signs that read, "Forgive all debt!" Others ask (er, scream) that their college loans be forgiven. Still others want cheaper or even free housing.

Though varied, these demands all come down to protesters asking for free money, which is a contradiction in terms. But why shouldn't they? This pathology is partly the result of the climate of financial idealism. The biggest banks were lent money for next to nothing, massive insolvent companies were bailed out, and generally speaking, a large proportion of the wealth that was created over the last 20 years was imaginary! Bankers and protesters alike thought that being wealthy was equivalent to believing we are wealthy. But belief can only sustain reality for so long, and during the sub-prime mortgage crisis of 2007-2008, everyone realized the emperor had no clothes.

The problem that neither the Wall Street protesters nor contemporary finance can come to terms with — even after the markets realized our wealth was a farce — is that debt is real. As innocuous as swiping that plastic may seem, real debt is accruing. We the people hold trillions of dollars of debt but we need to grasp what this figure means in material terms if we are serious about fiscal solvency.

Only weeks ago, presidential candidate Ron Paul aptly said of America's debt, "It is not a budgetary problem, it is a philosophy problem." The debt problem exists today because our monetary policy, and subsequently our entire financial system, is built upon faulty idealistic logic. The problems we are facing that are caused by idealism cannot be solved with more idealism as so many of the Wall Street protesters would like. What we need is a healthy dose of realism based on sound principles.