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The Occupy Wall Street, Occupy London and related movements around the world have described the current economic situation as one pitting the top 1% of the population, there because of their business and financial connections, against the remaining 99%, who must stand up against the encroachment of their interests.

These Occupy protestors have been cleared from their protest sites, but the antagonism remains. There is a widespread impression that the financial community is a cabal that is working against the interests of the general public.

In a sense, these protesters are right: people, whether in the top 1% or not, generally work for their own interests. But the spirit of capitalism, as expressed by Adam Smith in his 1776 book The Wealth of Nations, is that “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” He could have added financier to this list of occupations that produce our dinner, and much more.

The financiers have become much more important than the butchers, brewers and bakers, for we live today in an age of financial capitalism. Financial structures guide every major activity today.

Finance is not best thought of not as the science of making money, as so many seem to assume these days. It is best described as the science of goal architecture. Every important human activity needs to be financed. That means that the incentives have to be structured for people to give their labor and attention to that activity, and so that they have the resources to succeed. It also means that the activity, whatever it is, has the continuing resources over time to succeed in its aims. Most important human activities take place over many years’ time. The key word here is stewardship. If one is responsible for a new baby, one knows that it has to be nourished every year as it grows up, and one cannot skip a year. The same is true for most other human enterprises. Unfortunately, without the continuing structure of modern financial capitalism, human attention to important goals tends to be inconstant.

The most important thing to do to reduce economic inequality is to fix financial capitalism, to make it work better, is to democratize it, that is, to make it more accessible to the more vulnerable people in the world.

Major human tragedies, as seen around the world, seem most often to be traced to some failure of application of modern principles of insurance, diversification, risk hedging, and the promotion of efficient production structures. Making these principles relevant to a broader swath of the world’s population, on an enlightened basis, with proper regulation so that the financial institutions serve their interests, is the best possible reaction to the Occupy movements.

Young people today, contemplating how they should respond to the idealism in the Occupy movements, might well consider taking on the task of learning finance thoroughly so that they can get inside the financial community or the government regulatory authorities and expand their operations from within, to the benefit of everyone in the 99%.

Prof. Shiller’s introductory Financial Markets course, ECON 252, is available for free through Open Yale Courseware.

Robert J. Shiller is Arthur M. Okun Professor of Economics at Yale University and a Fellow at the International Center for Finance at the Yale School of Management. His latest book, Finance and the Good Society, was published in April 2012 by Princeton University Press.

Listen to Bright Blue blog editor Jonathan Algar in conversation with Robert at the Henry Jackson Society:

{soundcloud}https://soundcloud.com/jonathanalgar/finance-and-the-good-society{/soundcloud}


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