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Occupy Wall Street and the 1-9-90 Rule

This column by Roger Arnold originally appeared on RealMoney on Oct. 13. For a free trial to RealMoney, follow this link.

After several weeks, the Occupy Wall Street movement has begun to take form and structure. But what the protest evolves into has yet to be determined. The movement appears to have grown out of the same restlessness that gave rise to flash mobs. And the principal catalyst for both appears to be what gave rise to the Arab Spring: high unemployment and rising costs for food, shelter, clothing and general personal expenses.

I wrote about the Arab Spring and flash mobs earlier this year and discussed the potential for flash mobs to take on a sociopolitical form, just as the Tea Party grew out of a desire not to bail out neighbors from their mortgages.

Occupy Wall Street appears to be following that route, but I don't know what its platform will be if it becomes a political force. Occupy Wall Street's ideal has been centered on the concept of the 99% vs. the 1%. It reflects both the rising unemployment that the majority of protesters are experiencing and the concentration of wealth at the top, with an increasing percentage of national income and asset ownership accruing to fewer and wealthier individuals.

The error in this thinking appears to be how the protesters air their grievances, and even organize their own thoughts. By going to Wall Street and organizing around a concept focused on the 1%, they are deluding themselves into thinking that their claim of representing the 99% will gain an audience with the 1%.

This is absurd.

Societies are not broken into haves and have-nots, rich and poor. Those are binary systems that largely reflect preindustrial-revolution societies. It is also improper to think of society as broken down into three groups: rich, poor and middle class. (When asked, most people will claim middle-class status without understanding what that is.)

The top 1% is the group that Occupy Wall Street is targeting, but the group below them is not the 99% -- it's the 9% that enforces the legal and political rules everyone must abide by. The bottom 90%, not 99%, includes Occupy Wall Street and many, many others in the society.

The concept of the 1-9-90 rule is often applied to social-media behavior on the Internet. Here, the 9% is made up of people in professions and positions required to maintain societal order. These include senior government officials (elected and appointed), professional and technical class sectors, medical doctors, educators, intellectuals, lawyers, accountants, engineers, business owners, and what Oswald Spengler and others have referred to as the warrior class, military officers and senior police officers.

The balance between the three groups is based on the 9% believing that their purpose is more aligned with the top 1% than with the bottom 90%. As long as the bottom 90% has their basic needs met, they will not challenge this balance. If those basic needs are disrupted, the bottom 90% pushes back. But, and this is very important, revolution never comes from the bottom up or the top down. Revolution comes from the 9% becoming disillusioned with the top 1% and identifying more closely with the bottom 90%.

Such a shift would have an enormous negative impact on the financial markets and would result in more legislation geared toward it rather than less. Investors should be watchful for signs that Occupy Wall Street is shifting its focus toward Washington and away from New York.

The media is currently spinning Occupy Wall Street as a potential anti-tea party movement, and that may or may not be the case. We'll have to wait to see if any agenda emerges. Right now, organized labor is trying to co-opt the movement.

In the end, this may amount to nothing. But given how quickly the tea party organized, and its impact on last year's elections, investors should watch Occupy Wall Street closely. The protesters' goal of social equality is admirable, but how they pursue it could be disastrous for financial markets.
Roger Arnold is the chief economist for ALM Advisors, a Pasadena, Calif.-based money management firm specializing in income-generating portfolios. Concurrent with his other business responsibilities, Arnold was a radio talk show host for 15 years. He focuses on behavioral economics and chaos theory, better known as the "butterfly effect." He explains the relationships between political, economic and social systems, and how they are all reflected in the financial markets -- stocks, bonds, commodities, currencies and real estate.

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