I can’t claim to be the 99%. I have done very well since America’s mortgage crisis ignited the world. But I support the Occupy movement. If the global situation were as it is today, back when I was entering the work force, I would have been burning things down. An entire generation has been robbed of a future while another cohort has been tossed into a ditch, and I’m surprised that the unrest didn’t start sooner, and that it has been as civil as it’s been. The leaders on both sides of the aisle are inept clowns, and I don’t see how things will get better without the young people tearing the whole system down and starting over.

The Occupy movement is just the latest scene in a play that has been unfolding for many years. As a result of being raised around “left behind” dispensationalists, survivalists, and spooks, I’ve always had a keen interest in the end of the world. I first became aware of the unfolding story sometime around 1992, when I read George Soros’s “Financial Alchemy”. Almost as an afterthought near the end of the book, Soros shared some perplexing data about an historic shift in the structure of global capital flows. It didn’t fit well with the rest of the book, and he didn’t really expound too much on it, but it made a huge impact on me. It was as if Israel had finally rebuilt a temple in Jerusalem, and nobody was talking about it. I was convinced that the world was going to catch fire at any moment, and I started learning everything I could.

Not long after, I worked for one of the companies profiled in “Confessions of an Economic Hitman”. Among other things, I built some economic models used to make policy decisions about public works projects and military projects in the U.S. and a few other countries. A few times, we found huge errors in the models after the policy decisions had already been made, and I learned that the model was often mere justification for a decision that was pre-ordained. Although I was devotee of Ayn Rand, I was also a pragmatist. I knew that the economic order was going to collapse, and I liked the idea that the impending global collapse would be backstopped by Western diplomatic and military power.

Later, George Soros raped Southeast Asia and Russia, and I became especially interested in his criticisms of free market “religion”. I couldn’t figure out if he was just posturing so that he could wash his hands of financial engineering’s crimes before the collapse, or if Ayn Rand’s philosophy was truly bankrupt. Then the Internet bubble started to inflate, and we were surrounded by libertarian cheerleaders and irrational exuberance. Every now and then, something would almost persuade me that the conventional wisdom about a bright tomorrow was true, and that I should leverage up to ensure the future. But I kept going back to the data on international capital flows, and it just didn’t add up. There was a tsunami coming, and the Internet bubble was a sideshow.

The first crash was a good start, but seemed tiny in the grand scheme. When 9/11 happened, I saw the subsequent militarization as an opportunistic (and wise, I thought) pretext on the part of Western powers to revert to diplomatic and military projection of power before our financial engineering weapons were spent. To my naive mind, the militarization seemed very proactive.

But things weren’t over yet. Chinese mercantilism inflated the mother of all bubbles in the West, and the good times rolled on.
My visibility into the system had improved over the years, and my friends and colleagues were all more established as well. Everyone knew how the movie was going to end this time. About 18 months before the collapse, I was having drinks with some officials from a couple of the world’s largest banks, and the topic turned to the mortgage situation. The consensus around the table was that the collapse was overdue, and would take out hundreds of banks. In hindsight, they identified the banks that would fail with surprising accuracy. I explained that I had been trying to convince my wife to sell the house and rent for a couple of years, so that we could buy back the house with cash at a large profit after the collapse. My comrades heartily endorsed the plan and offered to help persuade my wife. She ultimately refused, but my calculations of the net profit turned out to be fairly accurate (and the loss of equity in the house was ultimately offset by other gains).

A month or two ahead of the collapse, it became obvious that this was going to involve a lot more than mortgages. I was able to pull out of the markets before the collapse started. I had read Nassim Taleb’s scathing criticisms of Bear Stearns, so their collapse wasn’t a surprise to me, but it took a long time to sort out the rest of the contagion. I had already lost all faith in the authorities after Katrina hit; I’ve now learned to believe especially what is officially denied: Europe’s disintegration is even less surprising than the mortgage collapse was, and a slowdown in China followed by (or coinciding with) a sovereign debt crisis in the U.S. seem like very safe bets.

To be clear, everyone I know is richer than me, I’ve been wiped out completely in the past, and I fully expect to blow up again sometime in the not too distant future. And the point isn’t to applaud my foresight; I had very little visibility compared to many others. The point is that we all knew what was going to happen. The people who have profited relative to the 99% (or relative to the 99.9%, as Paul Krugman valiantly tries to establish in true Billy Goat Gruff fashion), knew what was happening. And the officials and talking heads continue to lie about it and spread misinformation. We are living in an increasingly interconnected world, and increased network effects mean increased information asymmetry, power law distributions, and winner take all effects.

Both left-wing and right-wing media continue to get Occupy completely wrong, but that was to be expected. As things get worse, and as the politicians continue to try to either demonize or co-opt the movement, we see who the ringers are. And we’re only going to learn that they’re all ringers. Jim Quinn puts it this way:

Over the last six weeks I’ve watched as the young protestors around the country have been called: filthy hippies, losers, lazy, coddled, socialists, communists, spoiled college kids, parasites, useful idiots, and tools of the left. Most of the wrath being heaped upon these young people for exercising their Constitutional right to free speech and freedom of assembly has been from the Baby Boom Generation, who are at the peak of their power in our society.

The disdain and contempt for these Millenial protestors flies in the face of the facts about this generation. They use drugs at a lower rate than their parents did at the same age. Teen crime rates and teen pregnancies have declined. They will have the highest level of college education in U.S. history. They were protected during their youth as organized sports taught them teamwork. They are the most technologically savvy generation in history. They volunteer at higher level than previous generations. They have been more upbeat and engaged than their predecessors (Gen X). And they are much closer to their parents than Boomers were at the same age. They reject the negativism and cynicism of their parents and believe positive change is possible in our society. They have shown respect for authority up until the last six weeks. They were primed to be led by Boomers that could articulate a positive vision of the future based on reality and a better tomorrow. They were ready to make sacrifices in order to create a brighter future. But a funny thing happened. The Boomer generation failed to deliver on their part of the bargain.

I don’t expect the Occupy movement to continue as just a protest movement. It will adapt, splinter, and morph. But overall social unrest will continue to grow. I believe that this is just the beginning, and that things will get much worse. Most of the protesters are directing their rage at the wrong targets, and most of them are economically illiterate. Many of the victories they win will just make things worse. But that, also, is to be expected. How could we expect the unemployed and misinformed masses to have a clear picture of the situation, when the elite have been profiting from the ignorance of the masses? I think it’s too late to raise up the disposessed in an orderly manner, and the revolution will proceed like all revolutions must. Messy and painful. But how else will we move forward?

It’s interesting to note that GK Chesterton, writing just before World War I tore Europe apart, observed many of the same imbalances and problems that we see today. An economy increasingly controlled by the oligarchs, with much of society left behind with no future. His thoughts about the French revolution are interesting for today.

6 thoughts on “Occupy”

  1. Wow.
    (I don’t really know how to start this comment)

    Chris Hedges, a participant in Occupy, was interviewed on a cbc show (The Lang &O’Leary Exchange) about a month ago. O’Leary has a reputation for being a Rand-disciple and believes profit is the ultimate measure of all things of value. He also has a rep for what he would call “telling it like it is” – basically being pretty sure he’s right about everything.

    O’Leary’s first comment to Hedges was something like, “Aren’t you afraid of coming off as some kind of left-wing nutbar…”
    Hedges cut him off quickly and defended the occupiers, saying many of them would call themselves conservatives in the much more traditional sense — they want a return to the rule of law.

    Hedges has also said, many times now, that things have gone too far to fix, or it’s “too late” as you put it.

    I’ve been reading Atlas Shrugged because of something else O’Leary brought up recently. I don’t agree with much, but I do feel I gotta learn something from him.

    I’m borderline functionally literate when it comes to economics. We sold our house in the summer of 2008. When the collapse came, we thought we’d wait before buying back in. Here in Canada people tried to be unphased by things. People would list their houses for 10+months without a sale and without a reduced price. I don’t think I want to own a house even now.

    I think I need to get educated fast when it comes to economics. What would you recommend now to protect against the coming leviathan?

  2. (Just in case it wasn’t clear, I haven’t been a devotee of Ayn Rand, or a libertarian, for many years.)

    Hedges is completely correct; the protesters are not affiliated with any party, and the democrats are learning that the hard way. Obama could have ensured a sweep in 2012 by very publicly returning all of Goldman’s political donations, the moment OWS started. But rather than issuing a mea culpa and switching to side with the protesters, the democrats are trying to co-opt them, and it’s too late for that. The protesters are out there because they have learned that both parties are zombies and there is nobody to turn to.

    I haven’t followed the Canadian market closely, but I know that real estate is booming in areas that have oil and shale gas (and still a good investment), and places like Vancouver and Toronto have been OK. I wouldn’t buy real estate in the U.S. right now, even with record low interest rates, because I don’t believe that real estate will perform as well as other asset classes over the next 10-20 years.

    It’s very difficult to suggest a crash course in economics, since we are in completely uncharted territory here. I continue to track things closely, but a lot of my information isn’t available to the general public and a lot wouldn’t make sense to most people. And I don’t give advice, because people would blame me if they got wiped out.

    The three predictions I gave in my post seem pretty certain to me. But everything else will be very fluid, and it will be tricky to predict the fallout of each trend up until very shortly before the events. For example, I think that a disintegration of the Euro zone will be good in the long run for the Northern European economies. Right now, I think that Northern Europe will be economically very strong at the same time that the U.S. and China are struggling. But future events could change my prediction. Likewise, the only path forward for America is to devalue the dollar dramatically. This means there will be a future surge in domestic manufacturing growth. This could happen around the same time that impending sovereign debt crisis causes mass government layoffs and cuts in essential services, so people affiliated with the manufacturing sector would see a large improvement in status *relative* to the general population (and presumably that would be good news for Ontario, since so much U.S. manufacturing spills over, and the U.S. cannot ramp so fast). People affiliated with fringe government services will be hurt, but people who are essential to core federal government functions will become richer and more powerful.

    Probably the most important advice is to stay healthy and active. Health care will get worse, and it’s hard to maneuver into productive and rewarding roles in a dynamic environment when you lack energy, stamina, or mental clarity — let alone if you’re bedridden.

  3. (You’re anti-devotion to Rand was clear. I’ve just had a bit of a wake-up call recently on how influential that kind of thinking has become and so I’m trying to get some perspective. And please don’t worry about the advice. Not what I was asking for, and yes that wouldn’t be fair anyway. You’re sentence: “We are living in an increasingly interconnected world, and increased network effects mean increased information asymmetry, power law distributions, and winner take all effects.” gives me a lot of concerns.)

    Things definitely seem to be moving west in my country. Ontario just had a provincial election and all three major parties were pretty much guaranteeing deficit budgets for the next 5+ years in their platforms. Ugh. Talk about zombies running things…

    I don’t understand how U.S. politics has fit into a two-party system for as long as it has. Both the dems and the reps seem to be made up of 2-3 smaller parties each. But schism seems more threatening than letting the whole thing disintegrate.

    Really, the world seems so hungry for change, but I’m not optimistic about what it will end up looking like.

  4. FWIW, this is the one that has been worrying me since Krugman brought it up last week. This next phase will be much worse than 2008. The huge spreads on German bonds on Monday are very sobering, and suggest that the U.S. is not immune to the bond vigilantes after Europe unwinds. And the new Fed stress test (which has historically been over-optimistic) assumes 13% unemployment in 2013.

    Combine this with the recent Roubini-esque revelation that China is nearly bankrupt and the rising sense of doom among Chinese officials, and things don’t look good at all.

    Currently, I think we see an attempted repeat of Libya in Syria, and ultimately a very risky conflict with Iran, accompanied by rising military tensions with China. This will be accompanied by severe economic shocks and political incompetence. And I think we see the U.S. increasingly become a police state as people react in fear from the social unrest and threats to security. I don’t expect it to disintegrate into “Mad Max”, but it’s going to be very ugly.

  5. BTW, I think you nailed it with your comments about a two party system. A multi-party system could be much more agile.

    And in the larger scope, I think that political and economic volatility benefit religious extremism. I’m impressed at the tenacity of the OWS protesters, but we cannot possibly compare to the effectiveness of the Muslim Brotherhood in Tahir square right now. Hundreds of thousands of demonstrators consistently applying pressure, despite the military using nerve gas and bullets to massacre protesters. I think our political elite (including the conservatives) have completely lost perspective on how resilient religion can be, and political Islam will make huge gains in this period of global volatility.

  6. Thanks for the links, J. It’s all incredibly sobering, but good to know. It looks like the sympathy OWSprotests here in Canada are now shut down and cleaned up.

    The link between volatility and extremism is a really good point.

    Your ‘modified Mad Max’ reference intrigues me. Another friend of mine is quite worried about complete failure. I’ve found post-apocalypse stories fascinating in that they make the fall or the decline seem immediate and dramatic. Like a cartoon airplane – when the engines stop, the fall is straight down, completely ignoring momentum.

    Unfortunately, I think we might have to face a generation or two of declining momentum, living in that fall. Still blink of an eye time-wise, but frustrating and awful to live through.

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