The Occupy Wall Street movement that began a month ago has spread across the globe and arrived in our own community with a march last week that ended with a rally in West Side Park, our stand-in for Zuccotti Park in New York City. 

The participants are angry with the current state of affairs in our country that they blame on “the rich.”  Their anger and despair has grown to a fever pitch as the official unemployment number has stayed above 9% and the more realistic U-6 unemployment that accounts for under-employed and those who have given up seeking employment is near 17%.

The outrage is aimed at the Wall Street banks that have received bailouts from the government without any accountability for the fraudulent lending practices that got them into trouble.  Their view, correctly so, is that our government has spread the risks to every American but allowed the profits to inure only to a privileged few.

The data supports their anger:  over the past 10-years, the bottom 90% of the US in terms of income showed losses in income over the decade while the income of the top 10% grew.  That can be explained in part by the changes in the tax laws early in the decade that gave favorable tax treatment to dividends and capital gains, which encouraged many corporations to increase their dividend payouts to shareholders, the predominant portion of whom are in that top 10%.

However, in my opinion, their anger is taking a shotgun approach to blaming “the rich” for all of their problems instead of laying the blame at the feet of our dysfunctional government that refuses to work together to solve the problems and the media that has a clear agenda (left-leaning or right-leaning depending upon where you view, listen to, or read your news) in what it reports.  Additionally, the focus of our government in solving the problem always reverts to Keynesian solutions that have proven to fail for decades – yet they are easy for politicians to sell to constituents because they involve deficit spending to kick start the economy.  Deficit spending, per se, is not the culprit but the choice of what to spend money on has shown a distinct lack of understanding by those in charge.

If the government would focus on spending that would address structural unemployment rather than transfer payments to states, we would see more results.  Putting money into infrastructure projects that improve bridges, build roads, and implement high speed rail in areas that will generate economic momentum – while avoiding the politically tempting roads to nowhere – we would see structural unemployment decrease.  Arguably, if we had put money into these sorts of projects two and a half years ago instead of making transfer payments to states to continue unrealistic compensation and benefit plans for state workers, teachers, and public servants, we would be well on the road to fixing much of what ails this country.

The sorts of jobs that pay significant wages for manufacturing or skilled labor activities just do not exist to the same extent in the United States today.  We have a significant skills gap between the types of new jobs available in high tech and service industries where the US now excels and the abilities of workers who have been downsized due to their plants moving to Asia where wages and regulatory burdens are lower.  Our government needs to focus on spending money on job training programs, particularly through community colleges, instead of continually extending unemployment benefits.

Yes, “the rich” have experienced a much greater benefit from our government’s policies over the past decade than middle and lower classes – but you can’t blame them for it.  These policies also benefited the rest of America in terms of our retirement plans.  Back in the early part of the decade, you will recall that the stock market crashed, taking many people’s 401k’s with it.  The tax cuts for dividends and capital gains for which the top 10% have benefited greatly also revalued equity investments higher, making them more attractive.  This reversed the slide in stock prices caused by the bursting of the NASDAQ bubble and 9-11, and over the next four years brought the stock market back to pre-crash levels. 

Unfortunately, the unintended consequences of a government policy supported by both parties that encouraged making mortgages to everyone regardless of ability to repay led Wall Street banks to develop mortgage products that ultimately caused stock prices to crash back to 2003 lows, and to those banks own need for assistance.  If we hadn’t changed the tax laws providing favored treatment for dividends and capital gains, the likelihood is that the stock market and our 401k’s would have floundered along and been even more negatively impacted by the mortgage crisis, heading even lower than the 2003 lows.

Higher tax rates are inevitable, but my opinion is that they will have negligible impact on “the rich” but have significant impact on the middle class.  People and corporations who currently pay little or no tax will continue to pay little or no tax, but those of us that already pay our fair share will end up paying more.  A comprehensive reboot of the tax code is necessary to eliminate the special treatment for a privileged few that is built into the tax code and to increase the fairness so that everyone is paying something and has a vested interest in solving the country’s problems. 

Is it fair that General Electric pays no federal income tax or that Nancy Pelosi can vote in a tax break for her husband’s fishing fleet based in Guam?  Warren Buffet says that it’s not fair that he pays a lower tax rate than his secretary – maybe so, but his secretary doesn’t have a high priced tax preparer working to minimize her taxes as Warren does – if he wants fairness, why doesn’t he just write a bigger check than the minimum engineered by his CPA?  Our current tax code has been cobbled together to suit the needs of the people with access to those making the laws; there is nothing fair about that and simply raising the tax rates will not solve that problem.

The solution is not to attack corporate America with new regulations or to capriciously apply current regulations – much as the NLRB has attacked Boeing for building a new manufacturing plant in South Carolina where the likelihood of unionization is less than in Washington State.  The solution is not to layer on countless new regulation and new government agencies in bills like Dodd-Frank that have nothing to do with preventing another financial crisis – how the implementation of the Durbin Amendment capping debit card fees paid by retailers prevents another financial meltdown, I have no clue. 

Rather, sensible regulation that is aimed at achieving objectives that will make our industries competitive, work places safe, compensation and benefits competitive, our environments protected, our currency sound, and allows for unemployment to decrease back to five percent level known as full employment, would be a much better goal for our representatives in Washington to collectively pursue than the individual agendas we currently seem to experience.

Dissatisfaction with our government showed up first in 2006 when the Democrats took over the House of Representatives, it expanded in 2008 when they captured the Senate and Presidency, hit a crescendo in 2010 when Republicans recaptured the House of Representatives, and now is manifesting itself in the protests we see even in our own community.  Will our legislators listen to what is and especially to what is not being said?

If their plan is to continue on the current path of increasing regulation, higher tax rates without significant reform of the tax code, and misdirected Keynesian spending, our problems with unemployment and stock market volatility will continue for a long time into the future.   

Let’s imagine that they are listening, that reform is on the horizon, and that the dissatisfaction with our government can be resolved to the satisfaction of everyone whether they are occupying Wall Street, Neil Street, or simply making their views know at the polls. 

Imagine, its easy if you try.

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Mark