The middle class is toast.
The story of what happened to America, more precisely what went wrong with America.
This work is at best an opinion piece, and at worst a badly conceived work of fiction that will be disproven readily (Which let me tell you folks, I hope that happens) because if not we are in for one hell of a wild ride. So, without further adieu, let me go ahead and tell you what I think happened.
First let me identify the source of the last sixty years of American prosperity. World War Two. We bombed the rest of the industrialized world flat. Europe lay in ruins, Japan lay in ruins. Pretty much every industrialized economy in the world lay in ruins. America was the victor, and commercially speaking, America was the only industrialized country left intact. The United States came off of a war footing, ready to rebuild the world and as an added boon to rebuilding the world; we also got to sell them a whole lot of consumer goods.
Unions, of which I will talk about in detail later, were quick to form (if they weren’t already) after World War Two, formed largely by the same people who fought and bled for the right to unionize during the great depression. Workers saw the large amount of profits being made by their bosses and rightfully wanted a piece. The middle class flourished. A person could graduate from high school and get a good factory job immediately, manufacturing flourished. The average wage in the United States during the 1950’s was fifty dollars an hour, plus benefits and vacation. Homes were cheap, jobs were plentiful and life was good.
Education during this period was cheap, if not free. Both sides of the isle politically speaking wanted a highly educated populace. Companies had a vested interest in a highly educated population to staff mills and factories and manufacturing. Highly technical jobs needed a well trained population to fill open positions. If there was not an educated population, companies would pull up stakes and leave for greener pastures. The Cold War and the budding Military Industrial Complex were also major factors.
During the 1960’s however the inevitable happened. The rest of the world started to catch up to the United States in if not manufacturing capacity and technical skill, in ability to make less complex electronics, consumer goods and raw materials. Starting with Nixon’s visit to China the world got to learn several new terms. “Globalization” and “Free Trade”.
The story of Globalization is an incredibly complex one, it starts with Nixon and continues today with the World Trade Organization, or the WTO. Starting with Nixon companies realized that they could “outsource” and “offshore” manufacturing and other jobs starting with the most simple and ending with highly technical engineering development. President Reagan during the changed the legal environment regulating a lot of the manufacturing jobs and created a legislative environment where companies could legally offshore good paying American jobs overseas to where the same goods could be manufactured for pennies on the dollar in countries with absolutely no regard for human rights. This was the beginning of the end for the Middle Class in America. Middle class wages plummeted as American manufacturing either packed up and offshored or was simply outcompeted by those companies who had.
Those service jobs that replaced the good paying manufacturing jobs were often low paying ones with no benefits. Retail, food service and customer service being a large portion of the jobs. We have gone from a nation of scientists and engineers to a nation that asks “Would you like fries with that?”
As a nation we however had several factors that lessened the blows of globalization. These being: A highly educated populace and the silicon revolution and easy access to credit. The cold war played a major part in softening the blow of the loss of manufacturing. Government and the military industrial complex (on the upswing after Reagan) played a large role in employing a large section of the educated populace, as military spending skyrocketed, emphasis shifted from manufacturing consumer electronics to other military projects and defense contracts.
The silicon revolution centered in California, with its highly educated population became a supporting factor in the economic boom during and after the Reagan years, and continued even after the microchip manufacturing industry itself offshored to Taiwan, India and later China. I am speaking of course of the internet boom. The e commerce revolution was the last nail in the coffin of individual national economies and even though the internet boom was largely unfelt by the middle class (due to most of the wealth being created going through the stock market… more on that later) It did keep middle class wages from stagnating on average.
Cheap credit was the largest factor in keeping the middle class where they were, economically speaking. Starting in the 1980’s, computerization of banking has allowed credit cards to play an increasingly large role in American budgets. In the 1980’s the middle class found itself with an interesting dilemma “How do I keep my standard of living intact while I take a lesser paying job?” More and more middle class Americans found their solution in Credit Cards. Credit cards were used to float discrepancy in income and spending. The banking sector knew this and made it very easy to run up balances in the tens and sometimes hundreds of thousands of dollars. These debts were then paid off with home mortgages, and the cycle began anew. This leads me into the next topic.
Home values. Home values have increased by a “healthy” five to ten percent every single year since the eighties. Middle class runs up credit card debt, pays off credit card debt with home mortgages. First, second and even third mortgages were being written without so much as a blink of an eye, because of the assumption that home prices could only ever go up (or so it was thought).
George W Bush. Fought two foreign wars, handed out multibillion dollar contracts to the people who put him in office. The sheer evil genius of his ultimate economic policy was staggering. Cut taxes, hand out no bid contracts (thereby boosting the economy) and do it all while running up the deficit. The results could not be seen until (he thought) years after he left office. The ultimate end of all of this is the following: The biggest economic disaster since the great depression. Let me explain why:
In any government, the lasting effect of any policy is not immediately seen for years after it is enacted. I believe that Bush knew that he could fight two wars cut taxes and pump large amounts of money into the economy thereby providing a short term gain and giving the illusion of a healthy vibrant economy in the short term, and even cut taxes to the richest one percent of Americans (also his base)
In 2003 I believe that Bush saw the writing on the wall. The economy was slowing and at that point, a severe recession was in the cards. You cannot have both guns and butter while cutting taxes. It (up until this time) just was not done. Que the housing market. Up until this point the housing market was hyper inflated due to bad banking policy of allowing loans for people who could not ever hope to afford a house,Fannie May and Freddie Mac were only the poster children bandied about the news like the whole thing was entirely their fault. It was not. Fannie and Freddie was only the tip of the iceburg.
President Bush turned a blind eye to a crisis in the making and even encouraged it by declawing the FTC and Banking commissions, introducing legislation to tear down Bretton Woods( The laws forcing separation between lending, investment and insurance and opening the door for all sorts of interest only loans, negative amortization loans and stated income loans. The most vile of these were credit default swaps and triple A rated mortgage bonds posting unreal returns based on the line of ever increasing home values. These bonds were teeny tiny pieces of home mortgages that never should have been extended in the first place.
Credit default swaps were created essentially as an insurance against the failure of certain instruments (AAA Bonds) that basically said: Okay, if these bonds don’t pay out we will insure them to a tune of your calling. These swaps often times exceeded the amounts of the bonds. Then these credit default swaps were then insured against to even higher amounts. The sprinkles on this whole cupcake were that banks were allowed to report potential gains as income. (Bank of America anyone?)
The banks of course knew that there was a crash coming. They knew it from the word go. They KNEW that the homeowners could never repay these mortgages. The banks expected to take people’s homes, they wanted to eat. What they did NOT expect was to choke on the sheer amount of homes coming back. The whole rotten house of cards came down on their heads. Collectively it was a bloodbath.
Instantly the same banks who mouthed “Oh I’m so sorry but I have to take your house, Personal responsibility and all that good stuff” realized that they were choking on what they expected to eat. Instead of a mouthful they got a whole garbage truck full of homes that weren’t actually worth a tenth of what they were mortgaged for. “Personal responsibility” and “Market forces” instantly became “Were too BIG to fail!! SAVE US GOVT!!” much like a teenager who sneers at his capitalist parents until he needs money to pay for his girlfriend’s abortion. ***
Line after line of banking and insurance executives joined by legions of lawyers and lobbyists flew in their personal jets into Washington. Panicked lawmakers in record time passed the “Toxic asset relief fund” to the tune of 800 billion, that’s BILLION dollars. 8000 million dollars with absolutely no accountability meant that the very same idiots who created this whole mess get to snort Bogotá blow off the tits of Brazilian hookers. To this day, 400 billion dollars is absolutely unaccounted for. AIG spent millions on a stockholder party in the Caribbean the very week after this monumental mess. And the worst is yet to come.
First, before we do anything else, let me explain a helpful way of considering the next issue: The middle class. Every healthy capitalist economy requires a middle class to function. Citizens shopping and buying things and putting money into the economy makes economies work. This is why we have the “Consumer spending index” and economics shows talk about “fearful savers” or “ happy spenders” and do polls on how people view the economy. Economics classes talk about “dollars spent” Dollars spent in local economies tend to carry “force multipliers” with them. Force multipliers are really just a funny way of saying “for every dollar spent, two or three are felt”
Here’s how it works: Say I go to a local grocers to buy a carton of eggs. I spend a dollar. That local grocers then goes on to spend sixty cents of that on improvements to a contractor. That contractor then spends fifty cents of that dollar to pay for material for a pool he plans to install a week from now. That materials company spends forty cents on rent and so on and so on and so on. For every dollar spent locally, three or four are felt.
The stock market and more recently banks however tend to function not as engines of investment in worthy projects (as they were intended) but as engines of rewarding shareholders. The world wide stock market as we see it today, functions more as a ponzi scheme than anything else. The stock market functions as a function of competition between publically listed companies as to who can more efficiently reward the stockholder best (see price over earnings index) as rather to can more efficiently (efficiency being rated as a function of cost) produce a product. Business and accounting teach you that assets and owners equity must be maximized and liabilities (including employee pay and benefits) must be minimized. The stock market then serves as a competition among companies to see who can pay their employees the least, reward the stockholders the most and produce the product the cheapest (sometimes even omitting the product entirely, see Bernie Madoff)
Money directed at the stock market tends to be redirected at the stock market in one form or another (moving from thereby creating a split or bifurcated economy between what is owned on paper, and what is really truthfully owned, creating a major problems down the road when and if anyone tries to collect on what is owed.The government bailout of the banks made this situation much much worse.
People look at the stock market and the economy and see the beginnings of “green shoots of a recovery” as the stock market is up almost two thousand points from a low of around 7500 two years and six months ago, but as I have demonstrated earlier what we see really is the effects of the “bailout” cash working its way through the system artificially propping up banks and lending institutions. The bailout money allows for banks to hold onto homes and property that they would otherwise be forced to sell at close to its true value. So instead of taking the TARP funds and using it to lend to business to create jobs, the banks are using the money to hold onto huge gluts of distressed properties in the hope that the economy will come back to its former glory. Another issue the banks have is that they have not even come close to declaring the losses inflicted by all of the “toxic assets” being held. They are being allowed not to declare the multi trillion dollar losses sitting on their books until the economy is more “stable”. The entire banking sector is playing a very expensive game of “kick the can”. These two factors mean that the banks look much healthier than they did in 2008 but in reality they are no more healthy then they had been before the banking crisis.
The next factor I will talk about is small business, or rather, the lack of it. Small business is what made this country great. If you owned a small business, it used to mean that you were firmly middle class. If you employed people, it would generally mean that they were middle class (or had the chance to become so). Part of what made this country so resilient is that people were allowed to own small business that employed people and gave them a means of income and livelihood. The computer revolution of the 80’s and 90’s made it possible to operate with “just in time” shipping and eliminated the need to warehouse goods longer than a few days. This in turn created a system where a company (Most notably Wal Mart) could sell goods from anywhere in the world for cents over margin.
This in turn had dire consequences for small businesses all over the United States. As Wal Mart spread all over the nation, devastating local economies wherever a Wal Mart went up, millions of small businesses, employing tens of millions of Americans went under within ten years. Gone were the living wages paid by these small businesses as they were replaced by the barely employable minimum wage employees of Wal Mart. Wal Mart more than any other corporation in the United States has done more to destroy the middle class than any other factor.
Wal Mart is an almost perfect ideal of a post globalization American corporation. Low prices are vastly overshadowed by the destruction it has wrought to the American way of life. Wal Mart maintains these low prices by not only squeezing its suppliers but it hurts employees as well (See no health insurance forcing wal mart employees into emergency rooms)
I have not discussed the role of Corporations in this piece, I will now briefly touch on the basic structure of a corporation and its alleged “personhood” granted to it by the Supreme Court around a hundred years ago. Corporations were originally formed as a tool for the public good, to build a bridge or to charter a town. They later through legal wrangling were allowed to form for the sole basis of making a profit by producing a product. Today the basic function of a corporation is to increase shareholder value. Corporations and those that work for them are not allowed to consider anything beyond maximizing shareholder value.
Court cases have been fought and won on behalf of corporations against CEO’s trying to consider other factors (such as employee pay and benefits, or environmental destruction). The shareholders won. It is simply beyond reasoning that corporations could be considered “people” when their sole goal, often sociopathic in nature is to increase value of the shareholder, regardless of the cost to people or the environment.
The WTO or the World Trade Organization has the legal power to sanction, or even stop governments from enacting legislation “contrary to the promotion of world trade” In other words, a country cannot make laws even when it has to do with the safety of its own citizens if doing so would be ruled “counterproductive” to the goal of “furthering world trade” The WTO has countless numbers of times stopped tariffs and laws and rules of its member nations from being enacted under threat of economic sanction. No matter where the products come from, or may or may not be paying their employees a “living wage” the WTO has a great deal of power over member and even nonmember nations.
The last factor I will be talking about is the effect of lobbying on governments worldwide. Where a lobbyist gains power (usually by donating to campaigns in the United States, but in other places outright bribery) countries (especially the United States) become more and more corrupt as its politicians stop seeking the public good, and start looking out for the good of the interests that elect them. This has run rampant with the most extreme example being the recent bank bailouts under both Bush and Obama, but also healthcare reform under Obama.
You cannot find a business interest these days without a lobby. Big Pharma makes the cost of prescription drugs hundreds of times more expensive than they would be under a pure capitalist environment. Healthcare lobbyists have driven the cost of basic medical attention out of the reach of a sizable portion of American consumers. The RIAA and MPAA make it to where playing a song “too loudly” can constitute a “public performance” costing the defendant millions of dollars. Big agriculture costs American taxpayers tens of billions of dollars a year to pay farmers not to plant crops. Recent supreme court rulings make campaign donations “free speech” meaning, the United States government can no longer regulate how much lobbyists donate to politicians. Corporations are now free to buy elections. Basic marketing psychology states that the he (or she) who is the loudest often has their message heard the most. More exposure equals more votes EVERY TIME.
Governments are losing ground to corporations at an alarming rate. The middle class is in danger of extinction worldwide. The basic social safety net is in danger of being completely eliminated. Things once considered basic human rights (Water being the most notable) are being monetized at an alarming rate. The middle class, the thing that keeps capitalist economies moving is being extinguished. As you are reading this now, the dow has dipped below ten thousand for the first time in a year.
Instead of taking the purely capitalist road (which would have been preferable) we have bought into being the most ill conceived disgustingly pandering bills into law. The healthcare bill is nothing more than a government mandate that says everyone in the US must have healthcare. It does NOTHING to address the rising costs of such and is nothing more then a big sloppy blow job to the people who created this mess in the first place. Healthcare lobbyists. The same can be said of the bank bailouts. This money is not being used to extend credit to small business or to extend loans to the people who create jobs. It does nothing for Main Street and everything for Wall Street. It has sewn the seeds of utter destruction of our economy as the money worms its way through the system, ending up in the pockets of the few with nothing but the screw for the many.
We are in a dire situation. There is no recovery coming. I have no real solutions to the problems I have presented. I have totally and completely lost faith in both parties. The Republicans are tools of the elite who create slick marketing campaigns to convince people that any social spending at all, whether it be education, or healthcare reform or banking regulation is nothing more then socialism. “Socialism!!” “Socialism!” they scream from corner offices of Wall Street firms, they are against any tax increases to the upper 15% of income earners, who despite their claims of “Class Warfare” have done nothing less in the last thirty years and they are winning. We think healthcare for all is “untenable” or “too expensive” despite the fact that the cost of the wars we have waged in the middle east could pay for the healthcare costs of every American for the next hundred years. (pure cost, not factoring in lobbying)
The democrats are no less culpable. They are in bed with the banks, and other less savory interests. I used to think the democrats were spineless weak and borderline retarded. I now know that they are bought and paid for by the same people the republicans are. I can think of no other excuse. After 9/11 the democrats rolled over and died and allowed two wars to be waged with little oversight. They turned a blind eye as then president George W Bush (and the oil and military contractors) buried themselves balls deep in the nation of Iraq, for little to no reason other than some flimsy evidence supplied by a Libyan asset who turned out to have been coached by the CIA. The democrats even took the biggest mandate for change they had since FDR and let the republicans dictate the tone of the conversation on Healthcare reform and financial reform. Now the Republicans are due a comeback in November.
We have been led to believe that both the mother and the father working full time sometimes two jobs is regular and American. We have been groomed to believe that vacation time and sick days are a privilege due only a select few. We have watched our incomes shrinks our retirements disappear with even the idea of a retirement the boon of the moneyed. We have been bombarded by our media to think this is normal. “The new economy: Say goodbye to retirement!” was the headline of a recent time magazine. All outlets of media are owned by and large by three highly rich people in the US. Where do their interests lie?
I will tell you this. We are due a depression. There is no way around it. It takes a middle class to drive an economy anywhere. Wall Street cannot survive without Main Street. Wall Street needs spending. We have nothing left. No amount of bailouts TARPS or money thrown at those who have too much already will get this economy going again. Nothing short of a new Public Works project will do that now. It is a basic function of economic activity that a dollar given to a poor person or a middle class person (who will spend it immediately in his or her local economy) will go a lot farther than a dollar given a rich person (who will invest it in the Ponzi scheme known as wall street) or give it to a bank (who will buy a house and hold onto it forever) The market needs a severe correction. Wall Street needs to reflect Main Street.
We no longer have the intelligence as a citizenry to realize what we have done to ourselves. I have no faith in the average American citizen to realize the extent to which they have been screwed, by both sides of the isle. Maybe Americans are too tired from working so many jobs, maybe they are just apathetic, and maybe they are stupid. Maybe they will finally wake up and realize just who is responsible for this mess and decide to vote people who aren’t tools for the elite into office, maybe just maybe, every civilization including ours has a shelf life. Perhaps we are due a hundred years of corporate feudalism and mass extermination killed on one hand by an angry environment and oppressed on another by our corporate overlords…
Ahh forget it. I’m going to go watch a movie.