There is a tendency in recent American political discourse to use the term “populism” as a form of putdown. The implication is that that while populists may have some legitimate grievances, they are rebelling in a disorganized and ill-informed way. As President Obama implied in early 2009, the populists have pitchforks, while his administration represented the responsible mainstream.
This is an inaccurate portrayal of populism in America, both historically and today. Occupy Wall Street is a perfect example. To be sure, part of that 2011 movement was purely about expressing frustration – justified frustration – at how very powerful people in the finance sector had behaved and continue to behave. But the movement also led to an important offshoot or related development, Occupy the S.E.C., which focused on the Securities and Exchange Commission.
This group wrote a brilliant commentary on the originally proposed Volcker Rule, which is designed to limit proprietary trading and other forms of excessive risk-taking at very large banks. Their comments, along with the work of others who wanted more effective reform, were helpful in pushing officials toward the final Volcker Rule, which was just unveiled.
At a hearing of the House Committee on Financial Services on Wednesday, at which I testified, some technical issues were raised by representatives of big banks and parts of the securities industry, but the broad outlines of the Volcker Rule are no longer resisted. When asked, none of the witnesses suggested that the Volcker Rule should be repealed. This is a big victory for Occupy the S.E.C. and all its allies.
This point is well made by Alexis Goldstein, writing in The Nation. Ms. Goldstein was a co-author of the original Occupy the S.E.C. letter (see her article for relevant links) and reading that letter or her column makes it clear why this form of “populism” has been so effective.
Ms. Goldstein and her colleagues are experts; they worked on Wall Street and, as a result, have compelling and highly relevant insights into how the very large trading operations there really work. This is not inside information so much as it is a granular understanding of who takes very large risks and why these so often go wrong.
Of course, articulate criticism in a vacuum or in an authoritarian setting will often achieve nothing – at least not for decades. But in our democracy, with a wide variety of people in regulatory positions, well-informed outside voices help insiders push for sensible reforms.
The same process lies behind every successful engagement between the International Monetary Fund and a country that is struggling to get its economic policies in order. When and if some sensible people try to push for reform, they are helped if well-informed pressure is brought to bear from the outside. In particular, when strong vested interests resist change – again, a common experience around the world – it is important to have someone pushing hard the other way.
Of course, Occupy the S.E.C. had many friends and allies in working for a strong Volcker Rule. Paul Volcker has unequaled prestige among economic policy makers. Senators Carl Levin of Michigan and Jeff Merkley of Oregon, both Democrats, devised legislative language and fought to get this into Dodd-Frank. Within official circles, Gary Gensler played an important role in keeping the Volcker Rule meaningful, and the late arrival of Kara Stein at the S.E.C. was essential for strengthening some crucial details.
And, as Ms. Goldstein points out, Better Markets – a pro-reform group headed by Dennis Kelleher – has been tireless in pushing for a better Volcker Rule. (Caitlin Kline, a co-author of the Occupy the S.E.C. letter on the Volcker Rule, now works at Better Markets.)The groups Public Citizen and Americans for Financial Reform have also been consistently helpful.
In terms of historical comparisons, Occupy the S.E.C. reminds me of various elements of populism that the United States experienced at the end of the 19th and beginning of the 20th centuries.
Those who criticized concentrated economic and financial power were not held in esteem by J.P. Morgan and his friends. But antitrust policies made a lot of sense when they began to be carried out under President Theodore Roosevelt – and I don’t think anyone would want to go back to the levels of monopoly permitted before 1900.
And important figures in those populist circles, such as Louis Brandeis, who wrote brilliantly on financial-sector issues, went on to play leading roles in making responsible economic policy. (Brandeis, of course, was subsequently appointed to the Supreme Court.)
The modern world is complicated, but so it was in 1900, too. The details of policy will be made by experts, which is why it is so important to have experts on the outside, providing detailed critiques and guidance. (And Occupy the S.E.C. has already published a number of important concerns about how the published rule will be implemented..)
Whether the Volcker Rule will actually work remains to be seen; a lot depends on how it will be put in effect by regulators. But the fact that Occupy the S.E.C. is watching carefully from the outside should give us greater confidence that at least this element of financial reform will prove helpful.
Simon Johnson, former chief economist of the International Monetary Fund, is the Ronald A. Kurtz professor of entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”
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