On OWS and the Fed

[I haven’t been posting my radio commentaries here in a while. Here’s some of October 8’s.]

Rethinking OWS

Turning to larger issues, not only does Occupy Wall Street continue, it’s grown in numbers and prominence—several major unions marched in solidarity earlier this week in Lower Manhattan—and it’s spreading around the country. It’s focusing attention on issues of inequality and exploitation in a way we haven’t seen in ages. And Democratic politicians are looking pressured to say sympathetic things—though I suspect they’re just looking to take advantage of the thing for their own electoral reasons. But, as my wife Liza Featherstone remarked the other night, at no time in her life (she’s 42) have politicians felt compelled to co-opt a movement on the left. This is extremely good news.

I’ve also rethought some of my earlier skepticism about where all this will lead. Last week, after professing my love for the protesters—a love that has only deepened—I said that they need to develop some organization and demands. On further reflection, I don’t think that’s their job as a group. Some of the individuals may do that—who knows what kinds of contacts and networks are developing and where they will go. But I think they’re now doing what they’re best at: getting a wide variety of people to think and talk about the disastrous state of the U.S. economy and our aspirations for making it better. Organization and program can be left to others. I’m full of ideas, for example, though I’m not so organized. Unions are showing signs of political life they haven’t shown in living memory. I don’t trust what Democrats are doing with this movement—even supposed good guys like Van Jones. But if they’re forced to tax millionaires to fund a jobs program, or at least say they’re into that idea, then something’s moving.

I’m also proud that my hometown is inspiring people across the country and around the world. It’s been a long time since the city of JP Morgan and Michael Bloomberg have done that. Like I said last week, who knows where this will lead—but so far, it’s leading to some good places.

On the Federal Reserve

I have noticed some strange, Ron Paul-ish stuff about the Federal Reserve around Occupy Wall Street. I do want to file a complaint about that.

The Federal Reserve is admittedly manna for conspiracists. It’s a fairly opaque institution that does work for the big guys. But it’s not their puppet exactly. A friend who spent many years at the New York branch of the Fed once told me that within the institution, the thinking is that bankers are short-sighted critters who come and go but the Fed has to do the long-term thinking for the ruling class. So it has more autonomy than the popular tales allow.

The founding of the Fed is also a great subject of mythmaking—like secret meetings involving more than a few Jews. (The conspiratorial mindset often overlaps with anti-Semitic stories about rootless cosmopolitans, their greed and scheming.) There were some secret meetings, but the creation of a central bank was a major project of the U.S. elite for decades around the turn of the 19th century into the 20th. There’s a great book on that topic by James Livingston that I urge anyone interested in the topic to read. It was a long, complex campaign, and not the task of a secret train ride to a remote island.

Although the Fed does put U.S. interests first, it is internationally minded, and consults constantly with its foreign counterparts. This is also rich soil for conspiratorial thinking—that, plus, of course the Jews. (Greenspan. Bernanke. You’d almost forget that 1980s Fed chair Paul Volcker’s middle name is Adolph.) You know the story—dastardly plots involving foreign financiers (with names like Rothschild) whose victims are good patriotic Americans. As anyone who watches the Fed closely, like me, could tell you, that’s just not the case.

And it’s tempting to see this body as controlling everything—it’s complicated and messy to think about how financial markets work, and the Fed’s relationship to those markets. Much easier to think of the Fed controlling everything. But in fact the Fed sometimes reacts to the markets, sometimes leads them, and on occasion fights with them.

In the 1980s, the Federal Reserve under Paul Volcker ran a very tight ship. It deliberately provoked a deep recession in 1981-82 by driving up interest rates toward 20% to scare the pants of the working class. It was a very successful class war from above that led to a massive upward redistribution of income. More recently, the Fed handed out massive amounts of money—I’m not citing actual figures since they’re vague and mind-boggling, but they’re very big—with no strings attached to major banks. Something like this was necessary to keep everything from going down the drain, but it didn’t have to be done so secretly and with no accountability. Banks were basically given blank checks to restore the status quo ante bustum. That’s terrible. You could say the same for the TARP bailout—massive giveaways with no accountability or restrictions. This is all odious.

But more recently, Fed chair Ben Bernanke has been about the only major policymaker in the world pushing for more stimulus for the U.S. economy. He’s not a partisan of austerity, like the Republicans or much of the pundit class. For this he’s earned some criticisms on the right. The right would be happy to let things go down to prove a point. They think we need a “purgation.” I was recently on a panel with a Fed-hating libertarian who invoked the concept of “purgatory,” as if we’ve all sinned. But that would create far more misery than we know now.

There’s a video (#OWS Protester Nails It! Federal Reserve) of an Occupy Wall Street protester calling for an end to the Fed and urging a vote for Ron Paul. It, and the comments, are straight out of the right-wing critique of the Fed. I’ve seen signs calling for that around the occupation. This is bad news. Ron Paul has a coherent political philosophy. He’s a libertarian. He may hate imperial war, but he also hates Social Security and Medicare. The reason he wants to end the Fed is that he wants to get the state out of the money business and return to a 19th century gold standard. A gold standard is painfully austere. The gold supply increases by less than 2% a year. That means tremendous pressure on average incomes. It’s great if you’re a big bondholder, but hell if you’re a regular person. When we were on a gold standard in the 19th century we had frequent panics, crises, and depressions. Almost half of the last three decades of the 19th century was spent in recession or depression. It put both rural farmers and urban workers through the wringer.

We need to democratize the Fed, open it up, and subject money to more humane and less upper-class-friendly regulation. But let’s not sign on with Ron Paul, please. And let’s not join with the simple-minded right-wing critique that blames all of capitalism’s systemic problems on government institutions.

24 Comments on “On OWS and the Fed

  1. Yes, there are a few gold bugs, but I don’t think mostly. Occupy Missoula has recently created Occupied Media – it’s designed to provide information to the smaller occupations. Their first interview was with Jeff Madrick:


    I hope it’s clear from the interview that we’re not all gold bugs and that we’re more sophisticated than maybe the media gives us credit for (not at video production, obviously – but I think the content is a higher level than you’d usually see on TV). Would you be willing to give Occupied Media an interview? It’s via skype so, you can do it anytime from anywhere. We’d love to hear all of your ideas and get them out to our members.

    (Okay everyone, tell Doug he should help us out..:))

  2. No one has to convince me – I’d love to do it. When? The next two or three days are pretty busy but early next week would be great.

    I know you’re not all goldbugs! But there are a lot of people who don’t get the first thing about the Fed and hear stuff like that floating around and might fall for it. So I wanted to jump in.

  3. The other problem with gold is that it barely makes a real (post-inflation) rate of return. Harvard’s Jeremy Siegel points out in “Stocks for the Long Run” that from 1801-2001 gold couldn’t even beat out T-Bills. Sure a few “market timers” bought in at $250/oz. a few years back, but even at $1900/oz. you’re still below the 1980 value of about $900/oz.

  4. In _The Jacksonian Persuasion_, Marvin Meyers wrote:

    Jefferson had brought into temporary equilibrium the formal ideal of a dynamic liberal society and the concrete image of a stable, virtuous yeoman republic. “It is,” he wrote, “the manners and spirit of a people which preserve a republic in vigor.” And God had made the independent citizen farmer “His peculiar deposit for substantial and genuine virtue.” Nothing is more revealing than Jefferson’s later concession of the need for domestic manufacturing, under the pressures of war: “Our enemy has indeed the consolation of Satan on removing our first parents from Paradise: from a peaceful agricultural nation he makes us a military and manufacturing one.” Now Jacksonian society was caught between the elements—the liberal principle and the yeoman image—and tried again to harmonize them. Americans were boldly liberal in economic affairs, out of conviction and appetite combined, and moved their world in the direction of modern capitalism. But they were not inwardly prepared for the grinding uncertainties, the shocking changes, the complexity and indirection of the new economic ways. Their image of the good life had not altered: somehow, as men [sic, recurs] and as a society, they hoped to have their brave adventures, their provocative rewards, their open-ended progress, and remain essentially the same. The practical outcomes of the free pursuit of economic interest had never been legitimated, or even fully associated with the abstract liberal principle. Yet the ideological and material attachment to the liberal code was too deep to be severed, even in considerable distress.

    Thus many found in the anti-Bank crusade, and in the Jacksonian appeal generally, a way to damn the unfamiliar, threatening, sometimes punishing elements in the changing order by fixing guilt upon a single protean agent. A laissez-faire society with this source of corruptions cut out would re-establish continuity with that golden age in which liberty and progress were joined inseparably with simple yeoman virtues. Under the Jacksonian persuasion men could follow their desires, protest their injuries, affirm their innocence. In this direction one can begin to meet the Jacksonian paradox: the fact that the movement which helped to clear the path for laissez-faire capitalism and its culture in America, and the public which in its daily life eagerly entered on that path, held nevertheless in their political conscience an ideal of a chaste republican order, resisting the seductions of risk and novelty, greed and extravagance, rapid motion and complex dealings.

    [end quote]

    When chaos emerged, and unearned privileges were accrued, in the course of the “market revolution,” to their minds, it must have been wrought by some perversion, some corruption, some conspiracy against “natural” liberty. There could be no other explanation, at least not for those who earnestly believed in “the obvious and simple system of natural liberty.” This need for rationalization may be why so many libertarians are so prone to conspiranoia. They must indict the world to acquit their ideal.

  5. Doug, how do you feel about the critique of the Fed that says (1) tight money/deflation favors creditors, inflation (within limits) favors debtors; (2) the Fed is institutionally accountable to creditors, and so leans toward deflation; (3) the Fed has an explicit anti-labor (or at least anti-wage-growth agenda) — Volcker, and then the flipside Greenspan’s “traumatized workers”, etc.; (4) with the conclusion that what we want in the short run is a period of fairly high inflation, and in the long run a democratically-accountable Fed?

    This seems like sort of the natural alternative to the Ron Paul stuff. Useful, or still too populist?

  6. I’m sorry, I’m too defensive (I think I did the same thing with Mike Konczal, probably should apologize there as well). I’m a little sensitive our movement will get tagged with this. At this point, no one knows the numbers of what the majority of those involved believed, but I would say that the people who have spoken thus far is indicative – Jeff Madrick, Joseph Stiglitz, Mike Konczal. As far as I know, there hasn’t been anyone from the Von Mises Institute.

    Right now people are trying to figure out what we’re about. Today you, Konczal and Yglesias were talking about this – to someone without any other information, they might think this is a prominent line of thinking. That would’ve kept me away if I thought it was what the movement is about. But I know YOU know all of that.

    I’ve loved watching the evolution of your thought on this movement. And the fact that your thought has evolved speaks volumes. Can’t wait to hear your thoughts. I emailed you with details. Again, sorry if I came off too defensive.

  7. I think they’re now doing what they’re best at: getting a wide variety of people to think and talk about the disastrous state of the U.S. economy and our aspirations for making it better. Organization and program can be left to others. /////// Hey , you’re learning . OWS is teaching you.

  8. at no time in her life (she’s 42) have politicians felt compelled to co-opt a movement on the left. This is extremely good news. ///// You should go back and read McGovern’s campaign platform in 1972. He was not only for getting out of Viet Nam, but proposed a full employment plan (!). Then Jesse Jackson totally “coopted” the left platform in 84 and 88 with the Rainbow Coalition. Also, the notion that “politicians” just “co-opt” movements on the left and are not significantly “co-opted” by the movements is not upheld by fact checking. FDR and the Democrats were very much “co-opted” by the left movement of that era. That’s why we got the New Deal. You know Social Security, legalized unions, unemployment insurance, et. al. The Democrats ( and some Republicans) and LBJ, a segregationist Senator, were very much “co-opted” by the Civil Rights movement, since he used his power to get the 1964 Civil Rights Act passed. He was also co-opted by the “urban rebellion” movement into getting passed the Great Society and War on Poverty: Medicaid, Medicare, Head Start, Legal Servcies for the Poor, HUD, HEW , revenue sharing , block grant. When politicians pass major laws that are based on the left’s program that means they are “coopted” , not “coopting” , the left.

    We very much need you to explain the Fed to the OWS as there are a lot of anti-fed obsessors on the OWS the facebook pages.

  9. The Federal Reserve is admittedly manna for conspiracists. It’s a fairly opaque institution that does work for the big guys. But it’s not their puppet exactly. A friend who spent many years at the New York branch of the Fed once told me that within the institution, the thinking is that bankers are short-sighted critters who come and go but the Fed has to do the long-term thinking for the ruling class. So it has more autonomy than the popular tales allow. //////// This is an important observation. However, it does make the Fed out to be a very central location of ruling class consciousness even more than the bankers themselves if the Fed is doing the long term thinking for the ruling class. It seems to mean that the Fed is the puppeteer for the system. Nonetheless, it is the opposite of the Paulites position because they are pro-capitalism and pro-ruling class.

  10. I appreciate the straight forward, down to earth way you’ve explain this financial struggle Doug. I hope many more people read this, and voice this perspective into the public dialoge.

    Fear is motivating many, but ignorance of facts continues to cause them to fail.

  11. If one goes down the road of attacking ‘finance capital’ it seems like anti-Semitism is never far behind. Finance capital and industrial capital are two sides of the same coin, the latter is hardly more pure.

  12. The only people who talk about the Fed at OWS are the Ron Paul people. I destroyed one of them in a debate and he threw his pamphlets down and walked away. Their demands and politics don’t really resonate with this crowd; Ron Paul’s popularity among young people is a product of the left’s failure to create a credible alternative in the past decade, but the future belongs to the occupiers.

  13. Pingback: More on Occupy Yeouido, and more Occupy Everything. « Left Turn At the Crossroads of Critical Thinking:

  14. Pingback: Doug Henwood: On Occupy Wall Street and the Federal Reserve | contested terrain

  15. I wish pundits would look beyond the “abolish the Fed” rhetoric of OWS to analyze the reasons WHY the Fed is now a target of very vocal portion of the public. I am older than Doug’s wife by a small margin – and I’ve never heard the public attack the Fed. Politicians, yes. But the public tended to stay out of such a debate.

    Until now.

    So why is that? I would hazard a guess that the public views the Fed as a vocal and active supporter of a corrupt and bankrupt financial sector. This is a sector, after all, that exists today only because of a massive and unprecedented federal bailout following a massive and unprecedented crash of our economy, caused by terrible business decisions on the part of too many highly compensated and well educated people within the financial community.

    People in finance are the ones who created and handed out NINJA loans. They’re the ones who packaged up a slew of questionable home loans and persuaded consumers and institutional investors to invest their retirement funds in them. They’re the ones who sell “innovative financial instruments” to one party and then sell insurance that pays out to another party when their own instrument blows up. Those are awful, destructive and absolutely indefensible business practices that wrecked our economy.

    But you wouldn’t get that from listening to anyone in the Fed.

    In “Activism”, former Fed chair Alan Greenspan’s blamed post-crash government activism for the tepid economic recovery. At one point, he actually states that before the fall of Bear Stearns and Lehman and all the others that failed in 2008, “few envisioned a major corporation (aside from Fannie Mae and Freddie Mac) being ‘too big to fail’.” (p. 9) Had he not heard of Continental Bank? Did he forget about the savings and loan crisis of the late 1980s? He might want to take a look at Michael Lewis’ “Liar’s Poker” to get an understanding of how the Continental Bank bailout led to the idea that they were all TBTF, which then led to some unsavory business choices…

    In a way, Greenspan was right to blame government “activism” – but just not in the way he presented it. His very own “activism” as Fed chair had a great deal to do with the crash – his overriding faith in markets led him to look the other way when deregulation turned “the markets” into a casino. For a man of his stature to talk about the “tepid post-crash recovery” without any examination of the events that led to such a devastating crash is evidence of a terrible and dangerous blind spot.

    With such skewed analysis on the part of a former Fed chair, the perception is out there – that the Fed supports, coddles and rewards a sector that engages in absolutely reprehensible business practices.

    The Fed should not be abolished. But it – and the sector it is supposed to regulate – need to be reformed in ways that help the economy grow.

    Do you see that happening?

  16. Hi purple,

    (Disclaimer: in the following, I’m not talking about the Ron Paul nuts or LaRouchies, but rather ordinary folks who might attack “Wall Street”)

    I agree with you that we have to combat false dichotomies of a “good” industrial capital and a “bad” financial capital. I also agree that this is an association that historical anti-semitic movements made.

    However, at least in Germany, too often there’s an overly hasty tendency to quickly inspect social movements for any signs of a truncated understanding of capitalism, and then quickly wag the warning finger about the dangers of antisemitism.

    Social movements don’t emerge from the forehead of Zeus having read all three volumes of Marx’s Capital. Getting people to develop a deeper critique of capitalism should be the task of revolutionaries within social movements. But an overly hasty suspicion of antisemitism can often ensure that you fail to get a fair hearing for your ideas. Understandably, people don’t like to be suspected of antisemitism.

    I’m old fashioned on this: Antisemitism necessarily entails an explicit thematization of Jews. We have to reject the bogus theoretical construct of “structural antisemitism”, which alleges that every truncated understanding of capitalism, even if it does not mention Jews, is an embryonic form of antisemitism. Sometimes a cigar is just a cigar.

    TL;DR Antisemitism is often a truncated form of anti-capitalism. Not every truncated form of anti-capitalism is Antisemitic.

  17. How does one “democratize the Fed” without eliminating fractional reserve banking or its affect necessitating exponential productivity ala the argument of the Social Credit movement?

  18. Pingback: Occupy4Life: #revolution in the name of all species « The Spiral Ladder

  19. Overall a very insightful post; however, I wanted to register one complaint of my own about a strawman I perceive in your argument: namely, assigning the gold standard position to Ron Paul. In his legislative record, Paul has push for, rather than a direct return to the Gold Standard (though he is a gold bug), but the breaking of the money monopoly to allow for competing currency.

    This, I believe, is fundamentally, different from simply reinstating the gold standard. Instead, it represents the *true* democratization of money; instead of simply having a democratically accountable institution at the head of the money monopoly, you institute a system in which every individual has an equal right to issue money (and innovate money – see bitcoin). I’d be very curious to hear how a competing, non-state currency system fits into the narrative you’re promoting…

  20. The history of old left opposition to the Federal Reserve System is for the most part forgotten. In the ‘teens, ‘twenties, and ‘thirties of the last century, the faction known as the “Western Progressives” was composed of left-wing Republicans, Texas populists, and prairie progressives who were very much opposed to the Federal Reserve Bank – especially the Wall Street Branch. The Republicans among them were akin to the tradition of the Greenbackers, and were, quite consciously, self-defined as “Lincoln” Republicans.

    In this mix, there were former Republicans like Robert LaFollette, Sr., and the elder Lindbergh, who both had been excommunicated from the Republican Party in 1917 for the heresy of being anti-War. Robert LaFollette, ran for President in 1924, and his Progressive Party Platform called for the reconstruction of the Federal Reserve System. The Farmer-Labor Party of Minnesota, founded by the elder Lindbergh, and A.C.Townley, the Incendiary who lit the “political prairie fire” of the Non-Partisan League, was even more radical, and insistent on this point. They wanted to Nationalize the Federal Reserve.

    Ron Paul, and his contingent are not coming from this tradition. They do not define themselves as “Lincoln” Republicans. Perhaps they would do well to study up on it, for it is a very valid tradition, and a worthy manifestation of “republicanism” [with a small r.] They seem to be vehemently against “government-issued fiat money,” in general, and seem to be very much under the spell of Ludwig Von Mises and his latter-day spokesman, Lew Rockwell, who despises Abraham Lincoln, and his non-interest-bearing, Fiat, “greenback” dollars.

    Fie, Richard Nixon, and his damned “southern strategy !”

  21. http://www.freedompub.org/profiles/blogs…

    According to the Washington Post Doug McKelway, a reporter for the city’s ABC affiliate WJLA, has been fired after he was suspended last month over a confrontation with his boss. The conflict arose because of a McKelway report about a demonstration by environmental groups, who protested during the BP/Gulf disaster over oil industry campaign contributions to members of Congress. Here is the report he delivered on July 20 from Capitol Hill:


    As you see, McKelway was tasked with reporting on a miniscule protest. If it had been pro-life activists or some other conservative cause, he would have been given another assignment. So he made it newsworthy by introducing relevant information such as:

    * How few demonstrators there were, which in order to be worth reporting, would require the speculation he delivered about “where the movement is headed right now”
    * Identifying the protestors as representatives of “far left” environmental groups such as Greenpeace and Friends of the Earth, which they are. Apparently it is only proper to identify ideology when the groups are “right-wing” or on the “far right”
    * President Obama’s $77,051 in campaign contributions from BP, leading McKelway to raise the possibility that the environoiacs’ are engaging in a “risky strategy” by accusing Congress members of taking “dirty oil money”
    * That (publicly) unpopular climate/energy legislation passed by the House faced such a tough road in the Senate that Majority Leader Harry Reid refused to even use the term “cap-and-trade”
    * That Democrats, as reflected by polls everywhere, face huge losses in Congress in November, which would seem to pertain to whether or not the Senate takes up a vote on cap-and-trade
    * That the last thing Dems, faced with dim electoral prospects, want to do is pass legislation that “imposes huge escalations in your electricity bill,” which would seem to fit a presidential candidate’s assertion not too long ago that cap-and-trade would make electricity rates “necessarily skyrocket”

  22. Pingback: Scrambled Stuff | There’s a video (#OWS Protester Nails It! Federal Reserve) of an Occupy Wall Street protester calling for an end to the Fed and urging a vote for Ron Paul. It, and the comments, are straight out of the right-wing critique of the Fed. I

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