14 October 2011

Occupy Wall Street: The Real Story

The Occupy Wall Street people seem to have no clear idea of what they want and why they are occupying anything. It turns out, however, that they may have more of a point than they realize. Take a look at this Science News article entitled, "Financial World Dominated by a Few Deep Pockets." Researchers have determined that 40% of all the world's wealth in the financial markets is controlled by 147 corporations. You download a PDF of their original paper, "The Network of Global Corporate Control," at arxiv.org.

These 147 corporations (mostly investment banks and brokerage firms) are highly interconnected. This has a number of policy implications. First, when one goes down, it can take the others with it — this can destabilize the entire global economy. And regulators in any one nation are pretty powerless to do anything about it. Second, those who want to forecast market conditions might do better to scrap their statistical models and just monitor what these 147 are doing.

What they are doing is properly the subject of further study, but I'll take a guess, which brings us to a third policy implication. I think they are concentrating wealth. True, they redistribute some wealth to buy off the forces that would try to take control of them if they concentrated wealth too fast, or too intensively. And if they really mess up, they might redistribute a lot of wealth (or a lot of debt in the case of Lehman). They give us little guys some chance to get our small cut. But over my lifetime, the average net flow has been away from the middle class in places like the US and Europe. I assume that it's been toward the big players. But that's a subject for further study as I said.

The concentration of wealth and the flows of wealth enabled by globalization and high-speed networking are things worth watching, by national policy makers acting together around the world. It is also worth watching by investors. Maybe they should learn more about their investments and actually vote their shares.

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