Why my heart is with Occupy Wall Street, but not my head

Like all populist movements by definition, they appeal to social, ethical, and/or socio-economic sensibilities of its supporters. The current occupy Wall Street and even the Tea Party movements are no exception. Both appeal to well defined and imbedded American values (equality and private enterprise, respectively, among others), neither is economically feasible. Both want extremes to the current economic that has created the modern global economy.

The biggest complaint against the OWS movement has been what are they fighting for. Here is how I see it. Answer this question. Would you rather live in a scenario where (a) you make $110,000 and your neighbors make $200,000 or (b) you make $100,000 and your neighbors make $95,000? If you answer b, then you essentially agree with the premise behind the OWS movement. Even me, who more or less is about as socialist as they come in this country, I can't help but want to live in a world like b.

Does that mean I'm not a pure socialist? Or that the current OWS supporters are? Not necessarily. In economics, like a lot of things in life, relativity is either a strength or weakness of the human condition. In economic terms, it means that we compare ourselves (rightly or wrongly) to those around us. If we are ONLy voting with our wallets, then scenario A makes the most sense! There, we have 10% more income, which allows us to buy 10% more house, food, car, toys, education, etc. However, from a socio-economic perspective, we are unhappy because everyone else is doing "better". Generally, we measure our success (financially, intelligence, professional life, parenting, etc.) against others in our peer group and those we know of in society. Thus, if we are unhappy with where we stack up against our friends and neighbors, essentially the easiest fix is to get new friends and neighbors, ideally those that are worse off than us! Although this would make us feel more secure and happy with our lot in the world, it isn't practical to move everytime we get more affluent neighbors nor ditch our friends every time one of them gets a promotion or better job. This would create a downward spiral to the bottom where just as we find people that we are better off than to be friends and neighbors of, they would leave us to improve their relative happiness.

This premise is at the heart at both the OWS and Tea Party movements, yet both have polar opposite means to achieve relative happiness in regards to this issue. The Tea Party essentially wants the free market to allow the cards to fall as they may and each individual sink or swim accordingly. Any economist will tell you, the more free market capitalism is employed, the more income disparity will increase. Whereas the OWS, which has largely occurred in response to the Tea Party movement and due to the unhappiness due to the current economic situation (high unemployment, large education debt, growing income inequality, etc.) as more and more people have become unhappy with their socio-economic standing.

So how does society rectify this disparity in beliefs and relative unhappiness? Simply, this is the role of government and always has been. What happened when large landowners in England wanted some say in what happened to their land, the Magna Carta was written. What happened when the ruling, wealthy class in France continued to exploit (most importantly in appearance and in relative happiness)? Heads rolled and a republic was formed granting voting rights and the beginning of social programs there. What happened in the US when the haves began to control an ever increasing majority of the means of production, mass increases in wealth, while the majority of workers' plight did not improve? The progressive income tax was introduced (ie to (and from) each based upon their need) and everything from the Departments of Commerce, Education, Labor, Interior, and the FBI were created to provide steps to attempt to rectify lack of fairness in a free market, capitalist society.

Over 100 years later, after many tweaks left and right, where are we? No matter how you splice the data, the rich are getting richer (both in relative and real terms) while the lower percentiles are getting farther and farther behind them, and now reaching a point similar to where we were 100 years ago, trying to determine how best to encourage economic growth, while also not discouraging the vast majority of the have-nots from giving up on joining the haves, thus grinding the economy to a halt.

No matter your opinions on the role of government (more or less), the biggest issue facing our country right now is the combination of the current world economic crisis and the US budget constraints. So, what is the solution?

If we were to follow the Tea Party stance, less government and regulation (including taxes), it will only exasperate the problem. The rich have resources to exploit, or at the very least opportunities, to improve their resources. Others do not. Any business major (and hopefully even high school math students) can tell you the benefits of the time value of money. Money generates money in a capitalist society. However, one needs money (income > expenses) to take advantage of this system. The average college grad graduates with $30,000 in debt. This not only is a mental drag, it is an economic drag as well, taking money out of the economy that could be used for consumption and/or wealth creation in the form investments. Additionally, lower taxes and government cuts will require the government to reduce assistance in the form of Social Security, education (already sadly low), and other social supports.

However, if we were to follow the OWS plan, however idealistic they and me think, well, we'd most certainly bankrupt the government and probably further slow the wheels of our economy. Essentially, we cannot afford the demands.

So, where does this leave us? Obviously, this will all be resolved to some extent with time and political elections. But the proverbial "kicking the can down the road" is likely regardless of who wins the presidential election next year on either side unless the following concessions are made to either side.

For starters, a slight income tax increase for those that "won't miss it" along with tax code reformation will greatly provide the feeling of relative happiness for the "other 99%" and those that dislike the IRS as a whole. Essentially, a more progressive tax with less loopholes, thus lowering the tax burden for the vast majority while, in relative terms, barely raising the tax on higher earners. Also, government cuts must be made. Simple tweaks in the FICA ceiling limits (ie even though my benefits will increase over the next 30 years I put money into the system, the amount I contribute will not!) and other austerity measures with clear focus (reducing the bloated Defense budget for instance, and other wasteful and redundant programs government wide, can and would appease both deficit hawks and social engineers alike. For instance, taking just 10% of the defense budget would not weaken our national defense (simply ending the wars in Afghanistan and Pakistan could almost accomplish this feat!) and imagine if that money went to education and employment growth!?!? You would create a human capital investment that would again provide the means and ability for the American worker to compete on the global stage, especially in the future technological, medical, and engineering demands. All areas where education is the key component. Imagine how many nearly graduated students might take a research or create their own business (ie Facebook) if they weren't burdened with a monthly student loan bill?!?!?

So, although I agree in principle with the OWS movement, what really needs to happen is for politicians to understand the burdens inherit in the system and take the steps to reduce and eliminate them where needed to allow the market and individuals to achieve those goals without falling farther and farther behind those already with a head start.