The Occupy Effect

February 11, 2012

Dan Bernhardt, Professor of Economics and Finance at the University of Illinois, tells us how he thinks the Occupy movement has influenced the world of economics.

The Occupy movement has had a significant impact on how the public perceives the optimal degree of progressivity of taxation (more public support to tax very high income earners by more), and within the US this represents a significant shift of views from the simple-minded assessment that all taxes are bad (and that the government does nothing for people). Long-term, I suspect that this will be the primary contribution, and a healthy one. It probably has a secondary impact on how short-term government discretionary spending is viewed (more favorably).

I definitely think that Occupy has had an impact on perception of inequality, and that one manifestation of this is the attitude toward capital gains taxation. Among many economists there has long been a view, for example, that the description of what represents capital gains is inappropriate for many hedge fund managers — these fund managers typically receive 2% of assets under management plus 25 percent of profits above a benchmark — the two percent is roughly risk free, and should not enter capital gains (taxed at 15% in the US), but instead should be taxed as ordinary income (much higher tax rate!). Mitt Romney’s tax release highlighted the low tax on capital gains that accrues to the wealthy predominantly.

Overall, there is now a heightened sensitivity to equity. There is also a heightened sensitivity among economists about the dangers of short-term budget tightening on the economy by many governments (as opposed to fixing long-term budgets, something that is clearly necessary to do), for economic growth/job creation, etc.; but I’m not sure whether this is due to the Occupy movement or the negative experiences of economies whose governments have engaged in the belt tightening and have been observed by economists.

As to Wall Street / financiers, etc., I think a fair summary of the views would be: (a) there was very bad regulation / under-regulation that influenced individual / firm behavior that underlay the housing problem, and that this drove the crisis in some sense; (b) there are some aspects of the system that created very bad compensation incentives for some forms of risk-taking by financiers; but still (c) there is nothing intrinsically wrong with Wall Street were adequate regulation in place.

Beyond that, there is probably a general view that the Occupy movement does not have a coherent vision, and, in particular, a clear idea of what is both feasible and desirable to do; rather that the movement is reflecting a general unhappiness. There is a view that it mixes the vague and the difficult to achieve (jobs creation, etc., beyond a general idea that government spending might help), and that this lack of focus on what might be feasible, desirable and achievable, has hurt the movement, and has made it, on occasion, vaguely annoying.

I suspect that the social unrest will die out as people get tired, have trouble seeing further progress, and the public ceases to view it as new and novel, and goals are hard to articulate, at least in terms of feasibility. How long it will continue, I do not know, but needs to stay fresh, which is hard to accomplish.