The Angry Americans

The Occupy Movement and The Tea Party have some common
targets

By Luigi Zingales
Juneau Empire
July 09, 2012

In the presidential race, it’s striking to note that the Republican
and Democratic candidates’ campaigns contain only vague echoes
of the two significant popular movements of the last few years:
the "Tea Party" and Occupy Wall Street.

In an attempt to tap some of the political momentum behind these
movements, each party has pushed the idea most amenable to its
base: the tea party’s anti-tax stand for Republicans; Occupy’s soak-
the-rich attitude for Democrats.

Yet both parties ignore what unites the two movements: their
fundamentally anti-elite, anti-establishment attitude.

The tea party and the Occupy movement both arose in response
to pervasive frustration. As we’ve grown accustomed to hearing
in recent years, Americans are angry.

They’re angry at bankers, who helped cause the financial crisis
but paid no price for it.

They’re angry at Washington, which blamed the bankers but
deserved as much blame, if not more, for failing to rein them in.

And they’re angry at an economy that seems to enrich the wealthy
while leaving most everyone else standing still or falling behind.

This anger manifests itself in a strong anti-elite bias and a
determination to resist an oppressive leviathan though the
monster takes different forms in the two movements.

For the Tea Party, it’s the federal government in Washington;
for Occupy, it’s bailout-addicted big business.

The difference is more apparent than real.

The problem is not big business per se but monopolistic and
politically powerful business. It is not government per se but
intrusive and corrupt government.

Is Fannie Mae inefficient, for example, because it is a large
monopolistic company or because it is a state-sponsored
enterprise? The answer is both.

Does the blame lie with the government or with the private
sector? Neither.

Their failures are the result of an increasingly corrupt system
of crony capitalism, in which businesses succeed not through
competitive merit but through government connections and
favoritism such as tax breaks, subsidies and other preferential
treatment.

For many people, the way big banks escaped the financial crisis
with their profits intact (and often enhanced) epitomized American
-style crony capitalism.

Neither party has had the courage to confront it, for fear of losing
campaign contributions and political power.

What would meaningful reform entail?

The first step would be an elimination of all tax deductions
and loopholes. Many of them have some justification, but
their existence creates the incentive to lobby for more.

Because cronyism thrives in opacity and complexity, the second
step would be to require that new regulations be so simple that
even members of Congress could understand them.

In a perfect world, legislators should be required to take a test
on the content of a law before they can vote for it.

This requirement would promote more competent representatives,
and it would also produce simpler legislation more sensitive to
people’s needs and not to the wishes of politically powerful
corporations, which hire armies of lobbyists to distort laws in
their favor.

What is also needed and has been shown to work is for every piece
of legislation to contain a metric against which its effectiveness
could be measured, so that any regulation that doesn’t achieve
the stated objective can be abolished.

To prevent undue influence on the political process, lobbying
and campaign contributions should be taxed progressively.

I’m not a legal scholar, but as freedom of enterprise doesn’t
prevent taxes on business, why should the 1st Amendment
prevent taxes on lobbying?

The battle against crony capitalism is foremost a battle against
anti-competitive, monopolistic corporations.

Antitrust regulation should thus be extended to the political
consequences of mergers.

When companies become disproportionately big, they become
disproportionately powerful, and as we have seen, their influence
distorts the political system.

In no sector is this truer than in finance, where consolidation
has made banks “too big to fail” and too powerful to combat.

A reinstitution of the separation between commercial and
investment banking, along the lines of the old Glass-Steagall
Act (repealed in 1999), would help contain this excessive power.

It’s worth keeping in mind that the patriots who threw English tea
into Boston Harbor in 1773 were not revolting against higher taxes
(the Tea Act, in fact, lowered the price of tea legally imported in
America) but against the privileges granted to the British East India
Co.

The American Revolution was a battle for political rights, but
it was also a battle for economic freedom and against an 18th
century form of crony capitalism.

Corrupt arrangements of this kind have unfortunately endured
to the present day, and their abuses finally sparked protest
movements from the right and the left.

The two political parties ignore these movements at their peril.


Luigi Zingales is a professor at the University of Chicago Booth
School of Business and a contributing editor to City Journal.

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